Internal Revenue Bulletin 2001-9 (PDF rendition): IRS Revenue Rulings

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

INCOME TAX
Rev. Rul. 2001–1, page 726.
E & P adjustments on exercise of option. The earnings
and profits of a corporate employer are reduced to reflect
the deduction the corporation takes when an employee
receives stock upon exercise of a nonstatutory stock
option.
Rev. Rul. 2001–8, page 726.
Inventories; floor stocks payments. Payments made or
received with respect to floor stocks must be accounted for
as adjustments to the invoice price or production cost of the
goods physically held on the floor stocks date to which the
payments relate, rather than as an adjustment to the tax
basis (carrying value) of those goods. This ruling provides,
for costing purposes, an optional simplifying assumption for
LIFO taxpayers regarding identification of the goods physi-
cally held on the floor stocks date to which the floor stocks
payments relate. Rev. Ruls. 85–30 and 88–95 clarified. Rev.
Proc. 99–49 modified and amplified.
EXEMPT ORGANIZATIONS
Rev. Proc. 2001–20, page 738.
This procedure describes the Voluntary Compliance on Alien
Withholding Program (VCAP), which is available to certain pub-
lic and other not-for-profit colleges and universities and their
charitable affiliates to resolve issues arising from the pay-
ment, withholding, and reporting of certain taxes due on pay-
ments made to alien individuals.
ADMINISTRATIVE
T.D. 8936, page 720.
Final regulations under section 118(c) of the Code relate to
the exclusion from gross income for a contribution in aid of
construction (CIAC) from any person (whether or not a share-
holder) to a regulated public utility that provides water or
sewerage disposal services. The regulations define what
property constitutes a CIAC for purposes of the exclusion
from gross income and provide rules for adjusting the basis
of water or sewerage disposal facilities acquired as, or
acquired or constructed with any money received as, a CIAC.
The regulations also provide the time and manner for tax-
payers to notify the Secretary of amounts treated as a con-
tribution to capital under this provision.
Notice 2001–16, page 730.
Intermediary transactions tax shelter. The Service may chal-
lenge certain transactions in which the assets of a corporation
are sold following the purported sale of the corporation’s stock
to an intermediary. Such transactions are designated as “listed
transactions” for purposes of sections 1.6011–4T(b)(2) and
301.6111–2T of the regulations.
Notice 2001–17, page 730.
Contingent liability tax shelter. The Service may chal-
lenge certain transactions in which a taxpayer transfers
assets to a corporation and the transferee assumes a lia-
bility that the transferor has not yet taken into account for
federal income tax purposes. Such transactions are des-
ignated as “listed transactions” for purposes of sections
1.6011–4T(b)(2) and 301.6111–2T of the regulations.
Internal Revenue
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Bulletin No. 2001–9
February 26, 2001
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Actions Relating to Court Decisions is on the page following the Introduction.
Finding Lists begin on page ii.
Announcements of Disbarments and Suspensions begin on page 752.
(Continued on the next page)

February 26, 20012001–9 I.R.B.
Notice 2001–18, page 731.
This notice provides an exception from the registration
requirements under section 6111(d) of the Code and the list
maintenance requirements under section 6112 for certain
leasing transactions, except as may be provided in subse-
quent guidance.
Rev. Proc. 2001–19, page 732.
Automobile owners and lessees. This procedure provides
owners and lessees of passenger automobiles (including
electric automobiles) with tables detailing the limitations on
depreciation deductions for automobiles first placed in ser-
vice during calendar year 2001 and the amounts to be
included in income for automobiles first leased during calen-
dar year 2001. In addition, this procedure provides the max-
imum allowable value of employer-provided automobiles first
made available to employees for personal use in calendar
year 2001 for which the vehicle cents-per-mile valuation rule
provided under section 1.61–21(e) of the regulations may be
applicable.
Rev. Proc. 2001–21, page 742.
Election to treat certain debt substitutions as realiza-
tion events. The procedure provides for an election that
allows taxpayers to treat a debt substitution, in certain cir-
cumstances, as a realization event even though it does not
result in a significant modification under section 1.1001–3
of the regulations. Rev. Proc. 99–18 modified and super-
seded.
Rev. Proc. 2001–22, page 745.
Pre-filing agreement program. This procedure permits a
taxpayer subject to the jurisdiction of the Large and Mid-Size
Business Division (LMSB) of the Service to request the exam-
ination of specific issues relating to a tax return before the
return is timely filed. If the taxpayer and the Service are able
to resolve the examined issues prior to the filing of the
return, this procedure authorizes the taxpayer and the
Service to finalize their resolution by executing an LMSB Pre-
Filing Agreement.
Announcement 2001–13, page 752.
New Schedule N (Form 1120), Foreign Operations of U.S.
Corporations, is now available. This form is used by corpo-
rations that have assets in, or operate a business in, a for-
eign country or U.S. possession.
Announcement 2001–21, page 752.
This announcement advises trustees and custodians of med-
ical savings accounts of the extension of the requirement to
file Form 8851, Summary of Archer MSAs, and changes for
magnetic and electronic filing.

2001–9 I.R.B.February 26, 2001
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents are consolidated semiannually into
Cumulative Bulletins, which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless oth-
erwise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Ser-
vice personnel in the disposition of other cases. In applying
published rulings and procedures, the effect of subsequent
legislation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same
conclusions in other cases unless the facts and circum-
stances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Ad-
ministrative Rulings. Bank Secrecy Act Administrative Rul-
ings are issued by the Department of the Treasury’s Office
of the Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a semiannual
basis, and are published in the first Bulletin of the succeed-
ing semiannual period, respectively.
The IRS Mission
Provide America’s taxpayers top quality service by help-
ing them understand and meet their tax responsibilities
and by applying the tax law with integrity and fairness to
all.
Introduction
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

February 26, 20012001–9 I.R.B.
It is the policy of the Internal Revenue
Service to announce at an early date
whether it will follow the holdings in cer-
tain cases. An Action on Decision is the
document making such an announcement.
An Action on Decision will be issued at
the discretion of the Service only on un-
appealed issues decided adverse to the
government. Generally, an Action on De-
cision is issued where its guidance would
be helpful to Service personnel working
with the same or similar issues. Unlike a
Treasury Regulation or a Revenue Ruling,
an Action on Decision is not an affirma-
tive statement of Service position. It is not
intended to serve as public guidance and
may not be cited as precedent.
Actions on Decisions shall be relied
upon within the Service only as conclu-
sions applying the law to the facts in the
particular case at the time the Action on
Decision was issued. Caution should be
exercised in extending the recommenda-
tion of the Action on Decision to similar
cases where the facts are different. More-
over, the recommendation in the Action
on Decision may be superseded by new
legislation, regulations, rulings, cases, or
Actions on Decisions.
Prior to 1991, the Service published ac-
quiescence or nonacquiescence only in
certain regular Tax Court opinions. The
Service has expanded its acquiescence
program to include other civil tax cases
where guidance is determined to be help-
ful. Accordingly, the Service now may ac-
quiesce or nonacquiesce in the holdings
of memorandum Tax Court opinions, as
well as those of the United States District
Courts, Claims Court, and Circuit Courts
of Appeal. Regardless of the court decid-
ing the case, the recommendation of any
Action on Decision will be published in
the Internal Revenue Bulletin.
The recommendation in every Action
on Decision will be summarized as ac-
quiescence, acquiescence in result only,
or nonacquiescence. Both “acquies-
cence” and “acquiescence in result only”
mean that the Service accepts the holding
of the court in a case and that the Service
will follow it in disposing of cases with
the same controlling facts. However, “ac-
quiescence” indicates neither approval
nor disapproval of the reasons assigned
by the court for its conclusions; whereas,
“acquiescence in result only” indicates
disagreement or concern with some or all
of those reasons. “Nonacquiescence” sig-
nifies that, although no further review
was sought, the Service does not agree
with the holding of the court and, gener-
ally, will not follow the decision in dis-
posing of cases involving other taxpay-
ers. In reference to an opinion of a circuit
court of appeals, a “nonacquiescence” in-
dicates that the Service will not follow
the holding on a nationwide basis. How-
ever, the Service will recognize the
precedential impact of the opinion on
cases arising within the venue of the de-
ciding circuit.
The Actions on Decisions published in
the weekly Internal Revenue Bulletin are
consolidated semiannually and appear in
the first Bulletin for July and the Cumu-
lative Bulletin for the first half of the
year. A semiannual consolidation also ap-
pears in the first Bulletin for the follow-
ing January and in the Cumulative Bul-
letin for the last half of the year.
The Commissioner does NOT ACQUI-
ESCE in the following decision:
Arnold W. Vinick v. United States,
1
205 F.3d 1 (1
st
Cir. 2000)
Actions Relating to Decisions of the Tax Court
1
Nonacquiescence as to whether actual, exercised authority over a company’s financial matters, including the duty and power to determine which creditors to pay,
is necessary for a finding that a taxpayer is a responsible person under I.R.C. section 6672.

February 26, 20017202001–9 I.R.B.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 56.—Adjustments in
Computing Alternative Minimum
Taxable Income
This Rev. Rul. announces that the earnings and
profits of a corporate employer are reduced to re-
flect the deduction the corporation takes when an
employee receives stock upon exercise of a non-
statutory stock option. Because this item reduces
earnings and profits, § 56(g)(4)(C)(i) does not
disallow the deduction of the item in computing
adjusted current earnings for purposes of alterna-
tive minimum tax. See Rev. Rul. 2001–1, page
726.
Section 61.—Gross Income
Defined
26 CFR 1.61–1: Gross income.
Must payments made or received with respect to
floor stocks be accounted for as adjustments to the
invoice price or production cost of the goods physi-
cally held on the floor stocks date to which the pay-
ments relate, rather than as an adjustment to the tax
basis (carrying value) of those goods. See Rev. Rul.
2001–8, page 726.
26 CFR 1.61–21: Taxation of fringe benefits.
This procedure provides the maximum value of
employer-provided automobiles first made available
to employees for personal use in calendar year 2001
for which the vehicle cents-per-mile valuation rule
provided under § 1.61–21(e) of the Income Tax Reg-
ulations may be applicable. See Rev. Proc. 2001–19,
page 732.
Section 83.—Property
Transferred in Connection With
Performance of Services
26 CFR 1.83–6: Deduction by employer.
This Rev. Rul. announces that the earnings and
profits of a corporate employer are reduced to reflect
the deduction the corporation takes when an em-
ployee receives stock upon exercise of a nonstatu-
tory stock option. See Rev. Rul. 2001–1, page 726.
Section 111.—Recovery of Tax
Benefit Items
26 CFR 1.111–1: Recovery of certain items
previously deducted or credited.
Must payments made or received with respect to
floor stocks be accounted for as adjustments to the
invoice price or production cost of the goods physi-
cally held on the floor stocks date to which the pay-
ments relate, rather than as an adjustment to the tax
basis (carrying value) of those goods. See Rev. Rul.
2001–8, page 726.
Section 118.—Contributions to
the Capital of a Corporation
26 CFR 1.118–2: Contribution in aid of
construction.
T.D. 8936
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Definition of Contribution in Aid
of Construction Under
Section 118(c)
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations concerning an exclusion
from gross income for a contribution in
aid of construction under section 118(c)
that is treated as a contribution to capital
under section 118(a). The final regula-
tions affect a regulated public utility that
provides water or sewerage services
because a qualifying contribution in aid of
construction is treated as a contribution to
the capital of the utility and excluded
from gross income. The final regulations
provide guidance on the definition of a
contribution in aid of construction, the
adjusted basis of any property acquired
with a contribution in aid of construction,
the information relating to a contribution
in aid of construction required to be fur-
nished by the utility, and the time and
manner for providing that information to
the IRS.
DATES: Effective Date: These regula-
tions are effective January 11, 2001.
Date of Applicability: For date of
applicability of §1.118–2, see
§1.118–2(f).
FOR FURTHER INFORMATION CON-
TACT: Paul Handleman, (202) 622-3040
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information con-
tained in these final regulations have
been reviewed and approved by the
Office of Management and Budget in
accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3507)
under control number 1545–1639.
Responses to these collections of infor-
mation are mandatory.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
control number.
The estimated annual burden per
respondent varies from .5 hour to 5 hours,
depending on individual circumstances,
with an estimated average of 1 hour.
Comments concerning the accuracy of
these burden estimates and suggestions
for reducing these burdens should be sent
to the Internal Revenue Service, Attn:
IRS Reports Clearance Officer,
W:CAR:MP:FP:S:O, Washington, DC
20224, and to the Office of Management
and Budget, Attn: Desk Officer for the
Department of the Treasury, Office of
Information and Regulatory Affairs,
Washington, DC 20503.
Books or records relating to this collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
On December 20, 1999, the IRS published
proposed regulations (REG–106012–98,
2000–2 I.R.B. 290) in the Federal Register
(64 F.R. 71082) inviting comments under
section 118(c). A public hearing was held
April 27, 2000. Numerous comments have
been received. After consideration of all the
comments, the proposed regulations are
adopted as revised by this Treasury decision.
Summary of Comments
Under section 118(a), gross income
does not include any contribution to the

capital of the taxpayer. Section 118(c)(1)
provides that a contribution to the capital
of a taxpayer includes any amount of
money or other property received from
any person (whether or not a shareholder)
by a regulated public utility that provides
water or sewerage disposal services if the
amount is a contribution in aid of con-
struction, satisfies the expenditure rule,
and is not included in rate base for
ratemaking purposes. Pursuant to the
authority granted to the Secretary under
section 118(c)(3)(A), the proposed regula-
tions define a contribution in aid of con-
structionas any amount of money or other
property contributed to a regulated public
utility that provides water or sewerage
disposal services to the extent that the
purpose of the contribution is to provide
for the expansion, improvement, or
replacement of the utility’s water or sew-
erage disposal facilities.
Customer Connection Fees
The proposed regulations define non-
taxable contributions in aid of construc-
tion to exclude customer connection fees.
Customer connection fees are defined in
the proposed regulations to include
amounts paid for the cost of installing a
connection or service line (including the
cost of meters and piping) from the utili-
ty’s main lines to the lines owned by the
customer, unless the connection or service
line serves, or is designed to serve, more
than one customer. Customer connection
fees also are defined in the proposed reg-
ulations to include any amounts paid as
service charges for starting or stopping
services.
Several commentators contend that
connection and service lines should not be
treated as taxable customer connection
fees for a number of reasons. For exam-
ple, these commentators argue that the
omission from the current law of the lan-
guage included in former
section 118(b)(3)(A) that directed the
Secretary to define a contribution in aid of
construction to exclude amounts paid to
connect the customer’s line to a main
water or sewer line signals congressional
intent to include connection and service
lines in the definition of a nontaxable con-
tribution in aid of construction. In addi-
tion, some of these commentators believe
that the inclusion of connection and ser-
vice lines as taxable customer connection
fees is inconsistent with the judicial inter-
pretation of a contribution in aid of con-
struction, which arguably would treat con-
tributions for main lines and connection
and service lines as taxable prerequisites
for services under the Supreme Court’s
decision in United States v. Chicago,
Burlington & Quincy R.R., 412 U.S. 401
(1973) (1973–2 C.B. 428). Some of these
commentators also contend that the exclu-
sion of connection and service lines from
the definition of a nontaxable contribution
in aid of construction is inconsistent with
regulatory accounting treatment, which
does not distinguish between main lines
and connection and service lines for pur-
poses of classifying property or for pur-
poses of ratemaking. Finally, a few of
these commentators point out that the
inclusion of connection and service lines
as taxable customer connection fees will
result in customers being required to
gross-up their contributions of connection
and service lines for taxes, increasing the
cost of housing and development and cre-
ating a competitive disadvantage for
investor-owned utilities.
The IRS and Treasury Department do
not agree with the commentators’ position
with respect to connection and service
lines. As explained in the preamble to the
proposed regulations, the inclusion of
connection and service lines in the defini-
tion of taxable customer connection fees
is consistent with the legislative history
explanation that section 118(c) was
intended to restore the contribution in aid
of construction provision of former sec-
tion 118(b) that was repealed by The Tax
Reform Act of 1986 for regulated public
utilities that provide water or sewerage
disposal services. H.R. Conf. Rep. No.
737, 104th Cong., 2d Sess. 316 (1996)
(1996–3 C.B. 741, 1056). While the lan-
guage regarding the definition of a contri-
bution in aid of construction did change
from the language in former section
118(b), Congress did not explicitly
include connection and service lines in the
definition of a contribution in aid of con-
struction but instead directed the
Secretary to define a contribution in aid of
construction, presumably aware of the
IRS’ and Treasury Department’s position
that connection and service lines are tax-
able customer connection fees based on
Rev. Rul. 75–557 (1975–2 C.B. 33), and
the proposed regulations under former
section118(b) (43 F.R. 22997
(May 30, 1978)). Moreover, the IRS and
Treasury Department continue to believe
that the exclusion of connection and ser-
vice lines from a nontaxable contribution
in aid of construction is more consistent
with the judicial and regulatory interpreta-
tion of a contribution in aid of construc-
tion and with the Supreme Court’s direc-
tive that exclusions be narrowly
construed. See, for example, Edwards v.
Cuba R.R., 268 U.S. 628 (1925) (IV-2
C.B. 122); Detroit Edison Co. v.
Commissioner, 319 U.S. 98 (1943) (1943
C.B. 1019); Chicago, Burlington &
Quincy R.R., 412 U.S. at 401; Florida
Progress Corp. v. United States, No.
93–246–CIV–T–25A(M.D. Fla.
July2,1998), appeal docketed,
No.99–15389–FF (11th Cir.
Dec. 29, 1999); Commissioner v. Schleier,
515 U.S. 323, 328 (1995); and Rev. Rul.
75–557. As explained by the court in Teco
Energy,Inc. v. Unites States,
No. 98–430–Civ–J–TJC (M.D. Fla. Oct.
21, 1999), “former [section] 118(b) codi-
fies the principles of Edwardsthat pay-
ments made by a government or other
group to a utility to encourage the exten-
sion of facilities into new areas benefit-
ting a large number of people are given
tax free status, while also affirming the
reasoning of Detroit Edisonand Revenue
Ruling 75-557, that payments made by an
individual or business entity to a utility as
a prerequisite to receiving water or
sewage services would be treated as tax-
able income to the utility.” Further, the
IRS and Treasury Department believe that
the definition of a contribution in aid of
construction used for regulatory account-
ing purposes should not control for tax
purposes. See, for example, Thor Power
Tool Co. v. Commissioner, 439 U.S. 522,
541–45 (1979) (1979–1 C.B. 167).
Accordingly, the final regulations retain
the exclusion of connection and service
lines from the definition of a nontaxable
contribution in aid of construction.
Some commentators state that, before
the proposed regulations were published,
some utilities took the position that pay-
ments for connection and service lines
were not taxable and did not charge their
contributors a sufficient amount to cover
2001–9 I.R.B.721February 26, 2001

their tax liabilities. The IRS and Treasury
Department understand that there was
uncertainty before the proposed regula-
tions were published and that some utili-
ties may have reasonably interpreted sec-
tion 118(c)(3)(A) to mean that connection
and service lines should not be treated as
taxable. It is clear that these final regula-
tions apply to money and other property
received on or after January 11, 2001, and
do not apply to transactions entered into
prior to that date. In addition, the IRS will
take into account all the facts and circum-
stances in applying section 118(c) to such
transactions.
Commentators suggest that customer
connection fees relating to services pro-
vided to public authorities, such as
schools, hospitals, public libraries, and
governmental entities, should be includ-
ed in the definition of nontaxable contri-
butions in aid of construction because
these services provide a broad public
benefit. In addition, commentators rec-
ommend that customer connection fees
relating to fire protection services should
qualify as nontaxable contributions in
aid of construction because a utility
receives no revenue for public fire pro-
tection services and only a nominal
standby fee for private fire protection
services. The IRS and Treasury
Department believe that, regardless of
whether the activities of public authori-
ties provide a public benefit, connection
and service lines that serve these cus-
tomers should be treated in the same
manner as connection or service lines to
any paying customer — as a prerequisite
for services. Consequently, the final reg-
ulations continue to treat amounts paid
for connection and service lines with
respect to public authorities as customer
connection fees. However, the IRS and
the Treasury Department agree with
commentators that amounts paid with
respect to fire protection services should
not be considered customer connection
fees.
Several commentators suggest that con-
nection and service lines that serve more
than one user, such as lines for apartment
houses, condominium projects, shopping
malls, and office buildings, should be
considered to serve more than one cus-
tomer and, thus, be excluded from taxable
customer connection fees, regardless of
whether the utility treats the facility as
one customer or many. The final regula-
tions do not adopt this suggestion because
whether connection or service lines are
designed to serve more than one customer
does not depend on the number of users
but upon the number of customers. Thus,
for example, if a water or sewerage dis-
posal utility treats an apartment or office
building as one utility customer, then the
cost of connecting the utility’s main lines
to the connection or service lines serving
that single customer is a taxable customer
connection fee.
Binding Agreement Rule
The proposed regulations provide that
if a water or sewerage disposal facility is
placed in service by the utility before an
amount is contributed to the utility, the
contribution is not a nontaxable contribu-
tion in aid of construction unless, at the
time the facility is placed in service by the
utility, there is an agreement, binding
under local law between the prospective
contributor and the utility, that the utility
is to receive the amount as reimbursement
for the cost of acquiring or constructing
the facility.
Commentators suggest that the bind-
ing agreement rule should be expanded
to include enforceable public utility
commission orders and tariffs. The final
regulations adopt this suggestion by
treating an order or a tariff, issued or
approved by the applicable public utility
commission, that requires a current or
prospective customer to reimburse the
utility for the cost of acquiring or con-
structing the facility as a binding agree-
ment. Because public utility commis-
sion orders or tariffs may be issued or
approved before or after the facility is
placed in service, the final regulations
also extend the time for entering into a
binding agreement or the issuance or
approval of an order or a tariff to no later
than 82 months after the close of the tax-
able year (the usual due date with exten-
sions for a taxpayer’s return) in which
the facility is placed in service.
One commentator suggests adding an
example demonstrating that payments
made pursuant to a binding agreement
qualify as a contribution in aid of con-
struction under section 118(c). The final
regulations adopt this suggestion.
Basis Rules
The proposed regulations provide that
the basis of a water or sewerage facility
acquired or constructed with a contribu-
tion under a binding agreement must be
reduced by the amount of the contribution
at the time the facility is placed in service.
Several commentators suggest that if the
receipt of all of the expected contributions
under the agreement occurs more than one
or two years after a facility is placed in
service, the utility should be permitted to
claim the full cost of the facility as basis
for depreciation purposes, subject to
adjustment as the contributions are
received. The final regulations do not
adopt this comment because sec-
tion 118(c)(4) disallows any depreciation
deductions for a water or sewerage dis-
posal facility that is fully paid with a non-
taxable contribution in aid of construction
under section under section 118(c). This
result is consistent with similar rules that
either exclude expected contributions
from basis or deny a deduction to the
extent the taxpayer has a right to, or rea-
sonable prospect of, reimbursement. See,
for example, §1.110–1(b)(4)(ii)(B);
§1.165–1(d)(2)(i); and Rev. Rul. 79–263
(1979–2 C.B. 82).
The proposed regulations provide
that, if a contribution in aid of construc-
tion treated as a contribution to the cap-
ital of the taxpayer is repaid to the con-
tributor, either in whole or in part, then
the repayment amount is a capital expen-
diture in the taxable year in which it is
paid or incurred, resulting in an increase
in the property’s adjusted basis in such
year. A couple of commentators suggest
that the repayment should be depreciat-
ed over the remaining life of the proper-
ty. The final regulations adopt this sug-
gestion.
Reporting Requirement
The proposed regulations provide that a
taxpayer treating a contribution in aid of
construction as a contribution to capital
must file a statement with its tax returns to
report the amount of the contribution in
aid of construction the taxpayer: (1)
expended during the taxable year for
property described in section
118(c)(2)(A) (qualified property); (2)
does not intend to expend for qualified
February 26, 20017222001–9 I.R.B.

property; and (3) failed to expend for
qualified property. Several commentators
express concern that the reporting require-
ment in the proposed regulations exceeds
the intent of the statute because sec-
tion 118(c)(2)(C) only requires the main-
tenance of adequate records. However,
section 118(d)(1) provides that if the tax-
payer for any taxable year treats an
amount as a contribution to the capital of
the taxpayer described in section 118(c),
then the statutory period for the assess-
ment of any deficiency attributable to any
part of the amount does not expire before
the expiration of 3 years from the date the
Secretary is notified by the taxpayer (in
such manner as the Secretary may pre-
scribe) of the amount of the expenditure
referred to in section 118(c)(2)(A), of the
taxpayer’s intention not to make the
expenditures referred to in section 118(c)
(2)(A), or of a failure to make the expen-
diture within the period described in sec-
tion 118(c)(2)(B). Thus, the regulations
do not impose an additional reporting
requirement but merely provide the time
and manner in which taxpayers must noti-
fy the Secretary under section 118(d)(1)
of amounts treated as contributions in aid
of construction.
Collection of Information under
Paperwork Reduction Act
Two comments were sent to OMB on
the collection of information contained in
the proposed regulations, with copies of
the comments sent to the IRS Reports
Clearance Officer. The commentators
estimate that complying with the record-
keeping requirements of section 118(c)
(2)(C) involves more hours and that the
number of respondents is greater than
estimated. The collection of information
burden under the proposed regulations is
based only upon the time for notifying the
IRS of the required information under
section 118(d)(1) and is not required to
include the time for maintaining accurate
books and records. Thus, the individual
time to comply with the collection of
information burden was not increased to
reflect these commentators concerns.
However, the estimated number of annual
respondents has been increased to 300 and
the estimated total annual reporting bur-
den has been increased to 300 hours.
Special Analyses
It has been determined that this
Treasury decision is not a significant reg-
ulatory action as defined in Executive
Order 12866. Therefore, a regulatory
assessment is not required. It also has
been determined that section 553(b) of
the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these
regulations. It is hereby certified that the
collection of information in these regula-
tions will not have a significant econom-
ic impact on a substantial number of
small entities. This certification is based
upon the fact that any burden on taxpay-
ers is minimal. Accordingly, a
Regulatory Flexibility Analysis under
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, the notice of proposed rulemaking
preceding these regulations was submit-
ted to the Chief Counsel for Advocacy of
the Small Business Administration for
comment on its impact on small busi-
ness.
Drafting Information
The principal author of these regula-
tions is Paul F. Handleman, Office of the
Associate Chief Counsel (Passthroughs
and Special Industries), IRS. However,
other personnel from the IRS and
Treasury Department participated in their
development.
* * * * *
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.118–2 also issued under
26 U.S.C. 118(c)(3)(A); * * *
Par. 2. Section 1.118–2 is added to read
as follows:
§1.118–2 Contribution in aid of
construction.
(a) Special rule for water and sewer-
age disposal utilities—(1) In general.
For purposes of section 118, the term
contribution to the capital of the tax-
payerincludes any amount of money or
other property received from any per-
son (whether or not a shareholder) by a
regulated public utility that provides
water or sewerage disposal services
if—
(i) The amount is a contribution in aid
of construction under paragraph (b) of this
section;
(ii) In the case of a contribution of
property other than water or sewerage dis-
posal facilities, the amount satisfies the
expenditure rule under paragraph (c) of
this section; and
(iii) The amount (or any property
acquired or constructed with the amount)
is not included in the taxpayer’s rate base
for ratemaking purposes.
(2) Definitions—(i) Regulated public
utilityhas the meaning given such term by
section 7701(a)(33), except that such term
does not include any utility which is not
required to provide water or sewerage dis-
posal services to members of the general
public in its service area.
(ii) Water or sewerage disposal facili-
tyis defined as tangible property
described in section 1231(b) that is used
predominately (80% or more) in the trade
or business of furnishing water or sewer-
age disposal services.
(b) Contribution in aid of construc-
tion—(1) In general. For purposes of
section 118(c) and this section, the term
contribution in aid of constructionmeans
any amount of money or other property
contributed to a regulated public utility
that provides water or sewerage disposal
services to the extent that the purpose of
the contribution is to provide for the
expansion, improvement, or replacement
of the utility’s water or sewerage disposal
facilities.
(2) Advances. A contribution in aid of
construction may include an amount of
money or other property contributed to a
regulated public utility for a water or sew-
erage disposal facility subject to a contin-
gent obligation to repay the amount, in
whole or in part, to the contributor (com-
monly referred to as an advance). For
example, an amount received by a utility
from a developer to construct a water
facility pursuant to an agreement under
which the utility will pay the developer a
2001–9 I.R.B.723February 26, 2001

percentage of the receipts from the facili-
ty over a fixed period may constitute a
contribution in aid of construction.
Whether an advance is a contribution or a
loan is determined under general princi-
ples of federal tax law based on all the
facts and circumstances. For the treat-
ment of any amount of a contribution in
aid of construction that is repaid by the
utility to the contributor, see paragraphs
(c)(2)(ii) and (d)(2) of this section.
(3) Customer connection fee—(i) In
general. Except as provided in para-
graph (b)(3)(ii) of this section, a customer
connection fee is not a contribution in aid
of construction under this paragraph (b)
and generally is includible in income.
The term customer connection fee
includes any amount of money or other
property transferred to the utility repre-
senting the cost of installing a connection
or service line (including the cost of
meters and piping) from the utility’s main
water or sewer lines to the line owned by
the customer or potential customer. A
customer connection fee also includes any
amount paid as a service charge for start-
ing or stopping service.
(ii) Exceptions—(A) Multiple cus-
tomers. Money or other property con-
tributed for a connection or service line
from the utility’s main line to the cus-
tome’s or the potential customer’s line is
not a customer connection fee if the con-
nection or service line serves, or is
designed to serve, more than one cus-
tomer. For example, a contribution for a
split service line that is designed to serve
two customers is not a customer connec-
tion fee. On the other hand, if a water or
sewerage disposal utility treats an apart-
ment or office building as one utility cus-
tomer, then the cost of installing a con-
nection or service line from the utility’s
main water or sewer lines serving that sin-
gle customer is a customer connection fee.
(B) Fire protection services. Money or
other property contributed for public and
private fire protection services is not a
customer connection fee.
(4) Reimbursement for a facility previ-
ously placed in service—(i) In general.
If a water or sewerage disposal facility is
placed in service by the utility before an
amount is contributed to the utility, the
contribution is not a contribution in aid of
construction under this paragraph (b) with
respect to the cost of the facility unless, no
later than 82 months after the close of the
taxable year in which the facility was
placed in service, there is an agreement,
binding under local law, that the utility is
to receive the amount as reimbursement
for the cost of acquiring or constructing
the facility. An order or tariff, binding
under local law, that is issued or approved
by the applicable public utility commis-
sion requiring current or prospective utili-
ty customers to reimburse the utility for
the cost of acquiring or constructing the
facility, is a binding agreement for pur-
poses of the preceding sentence. If an
agreement exists, the basis of the facility
must be reduced by the amount of the
expected contributions. Appropriate
adjustments must be made if actual con-
tributions differ from expected contribu-
tions.
(ii) Example. The application of para-
graph (b)(4)(i) of this section is illustrated
by the following example:
Example. M, a calendar year regulated public
utility that provides water services, spent $1,000,000
for the construction of a water facility that can serve
200 customers. M placed the facility in service in
2000. In June 2001, the public utility commission
that regulates M approves a tariff requiring new cus-
tomers to reimburse M for the cost of constructing
the facility by paying a service availability charge of
$5,000 per lot. Pursuant to the tariff, M expects to
receive reimbursements for the cost of the facility of
$100,000 per year for the years 2001 through 2010.
The reimbursements are contributions in aid of con-
struction under paragraph (b) of this section because
no later than 82 months after the close of the taxable
year in which the facility was placed in service there
was a tariff, binding under local law, approved by the
public utility commission requiring new customers
to reimburse the utility for the cost of constructing
the facility. The basis of the $1,000,000 facility is
zero because the expected contributions equal the
cost of the facility.
(5) Classification by ratemaking
authority. The fact that the applicable
ratemaking authority classifies any money
or other property received by a utility as a
contribution in aid of construction is not
conclusive as to its treatment under this
paragraph (b).
(c) Expenditure rule—(1) In general.
An amount satisfies the expenditure rule
of section 118(c)(2) if the amount is
expended for the acquisition or construc-
tion of property described in section
118(c)(2)(A), the amount is paid or
incurred before the end of the second tax-
able year after the taxable year in which
the amount was received as required by
section 118(c)(2)(B), and accurate records
are kept of contributions and expenditures
as provided in section 118(c)(2)(C).
(2) Excess amount—(i) Includible in
the utility’s income. An amount received
by a utility as a contribution in aid of con-
struction that is not expended for the
acquisition or construction of water or
sewerage disposal facilities as required by
paragraph (c)(1) of this section (the
excess amount) is not a contribution to the
capital of the taxpayer under paragraph
(a) of this section. Except as provided in
paragraph (c)(2)(ii) of this section, such
excess amount is includible in the utility’s
income in the taxable year in which the
amount was received.
(ii) Repayment of excess amount. If
the excess amount described in paragraph
(c)(2)(i) of this section is repaid, in whole
or in part, either—
(A) Before the end of the time period
described in paragraph (c)(1) of this sec-
tion, the repayment amount is not includi-
ble in the utility’s income; or
(B) After the end of the time period
described in paragraph (c)(1) of this sec-
tion, the repayment amount may be
deducted by the utility in the taxable year
in which it is paid or incurred to the extent
such amount was included in income.
(3) Example. The application of this
paragraph (c) is illustrated by the follow-
ing example:
Example. M, a calendar year regulated public
utility that provides water services, received a
$1,000,000 contribution in aid of construction in
2000 for the purpose of constructing a water facility.
To the extent that the $1,000,000 exceeded the actu-
al cost of the facility, the contribution was subject to
being returned. In 2001, M built the facility at a cost
of $700,000 and returned $200,000 to the contribu-
tor. As of the end of 2002, M had not returned the
remaining $100,000. Assuming accurate records are
kept, the requirement under section 118(c)(2) is sat-
isfied for $700,000 of the contribution. Because
$200,000 of the contribution was returned within the
time period during which qualifying expenditures
could be made, this amount is not includible in M’s
income. However, the remaining $100,000 is
includible in M’s income for its 2000 taxable year
(the taxable year in which the amount was received)
because the amount was neither spent nor repaid
during the prescribed time period. To the extent M
repays the remaining $100,000 after year 2002, M
would be entitled to a deduction in the year such
repayment is paid or incurred.
(d) Adjusted basis—(1) Exclusion
from basis. Except for a repayment
described in paragraph (d)(2) of this sec-
tion, to the extent that a water or sewerage
February 26, 20017242001–9 I.R.B.

disposal facility is acquired or constructed
with an amount received as a contribution
to the capital of the taxpayer under para-
graph (a) of this section, the basis of the
facility is reduced by the amount of the
contribution. To the extent the water or
sewerage disposal facility is acquired as a
contribution to the capital of the taxpayer
under paragraph (a) of this section, the
basis of the contributed facility is zero.
(2) Repayment of contribution. If a con-
tribution to the capital of the taxpayer under
paragraph (a) of this section is repaid to the
contributor, either in whole or in part, then
the repayment amount is a capital expendi-
ture in the taxable year in which it is paid or
incurred, resulting in an increase in the
property’s adjusted basis in such year.
Capital expenditures allocated to deprecia-
ble property under paragraph (d)(3) of this
section may be depreciated over the
remaining recovery period for that property.
(3) Allocation of contributions. An
amount treated as a capital expenditure
under this paragraph (d) is to be allocated
proportionately to the adjusted basis of
each property acquired or constructed
with the contribution based on the relative
cost of such property.
(4) Example. The application of this
paragraph (d) is illustrated by the follow-
ing example:
Example. A, a calendar year regulated public
utility that provides water services, received a
$1,000,000 contribution in aid of construction in
2000 as an advance from B, a developer, for the pur-
pose of constructing a water facility. To the extent
that the $1,000,000 exceeds the actual cost of the
facility, the contribution is subject to being returned.
Under the terms of the advance, A agrees to pay to B
a percentage of the receipts from the facility over a
fixed period, but limited to the cost of the facility. In
2001, A builds the facility at a cost of $700,000 and
returns $300,000 to B. In 2002, A pays $20,000 to B
out of the receipts from the facility. Assuming accu-
rate records are kept, the $700,000 advance is a con-
tribution to the capital of A under paragraph (a) of
this section and is excludable from A’s income. The
basis of the $700,000 facility constructed with this
contribution to capital is zero. The $300,000 excess
amount is not a contribution to the capital of A under
paragraph (a) of this section because it does not meet
the expenditure rule described in paragraph (c)(1) of
this section. However, this excess amount is not
includible in A’s income pursuant to paragraph
(c)(2)(ii) of this section since the amount is repaid to
B within the required time period. The repayment of
the $300,000 excess amount to B in 2001 is not treat-
ed as a capital expenditure by A. The $20,000 pay-
ment to B in 2002 is treated as a capital expenditure
by A in 2002 resulting in an increase in the adjusted
basis of the water facility from zero to $20,000.
(e) Statute of limitations—(1) Exten-
sion of statute of limitations. Under sec-
tion 118(d)(1), the statutory period for
assessment of any deficiency attributable
to a contribution to capital under para-
graph (a) of this section does not expire
before the expiration of 3 years after the
date the taxpayer notifies the Secretary in
the time and manner prescribed in para-
graph (e)(2) of this section.
(2) Time and manner of notification.
Notification is made by attaching a state-
ment to the taxpayer’s federal income tax
return for the taxable year in which any of
the reportable items in paragraphs
(e)(2)(i) through (iii) of this section occur.
The statement must contain the taxpayer’s
name, address, employer identification
number, taxable year, and the following
information with respect to contributions
of property other than water or sewerage
disposal facilities that are subject to the
expenditure rule described in paragraph
(c) of this section—
(i) The amount of contributions in aid
of construction expended during the tax-
able year for property described in section
118(c)(2)(A) (qualified property) as
required under paragraph (c)(1) of this
section, identified by taxable year in
which the contributions were received;
(ii) The amount of contributions in aid
of construction that the taxpayer does not
intend to expend for qualified property as
required under paragraph (c)(1) of this
section, identified by taxable year in
which the contributions were received;
and
(iii) The amount of contributions in aid
of construction that the taxpayer failed to
expend for qualified property as required
under paragraph (c)(1) of this section,
identified by taxable year in which the
contributions were received.
(f) Effective date. This section is
applicable for any money or other proper-
ty received by a regulated public utility
that provides water or sewerage disposal
services on or after January 11, 2001.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 3. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 4. In §602.101, paragraph (b) is
amended by adding an entry to the table in
numerical order to read as follows:
§602.101 OMB Control numbers.
* * * * *
(b) * * *
2001–9 I.R.B.725February 26, 2001
CFR part or section whereCurrent OMB
identified and describedcontrol No.
* * * * *
1.118–2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–1639
* * * * *
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved December 20, 2000.
Jonathan Talisman,
Acting Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on Janu-
ary 10, 2001, 8:45 a.m., and published in the issue of
the Federal Register for January 11, 2001, 66 F.R.
2252)
Section 280F.—Limitation on
Depreciation for Luxury
Automobiles; Limitation Where
Certain Property Used for
Personal Purposes
26 CFR 1.280F–7: Property leased after December
31, 1986.
This procedure provides owners and lessees of
passenger automobiles (including electric automo-

biles) with tables detailing the limitations on depre-
ciation deductions for automobiles first placed in
service during calendar year 2001 and the amounts
to be included in income for automobiles first leased
during calendar year 2001. See Rev. Proc. 2001–19,
page 732.
Section 312.—Effect on
Earnings and Profits
26 CFR 1.312–6: Earnings and profits.
(Also §§ 56, 83; § 1.83–6.)
E & P adjustments on exercise of option.
This revenue ruling announces that the earn-
ings and profits of a corporate employer are
reduced to reflect the deduction the corpora-
tion takes when an employee receives stock
upon exercise of a nonstatutory stock option.
Rev. Rul. 2001–1
If a corporation transfers stock upon
exercise of an option that was granted in
connection with the performance of ser-
vices and to which § 421 of the Internal
Revenue Code does not apply (a nonstatu-
tory stock option), and the option did not
have a readily ascertainable fair market
value at the time of grant, the earnings and
profits of the service recipient are reduced
by the amount of the deduction allowed to
the service recipient under §§ 83(h) and
162 by reason of such exercise. Because
this item reduces earnings and profits,
§ 56(g)(4)(C)(i) does not disallow the
deduction of the item in computing
adjusted current earnings for purposes of
alternative minimum tax.
The principal author of this revenue
ruling is Russell P. Subin of the Office of
Associate Chief Counsel (Corporate). For
further information regarding this revenue
ruling, contact Mr. Subin at (202) 622-
7790 (not a toll-free call).
Section 446.—General Rule for
Methods of Accounting
26 CFR 1.446–1: General rule for methods of
accounting.
What are the procedures for a taxpayer subject to
the jurisdiction of the Large and Mid-Size Business
Division (LMSB) of the Service to request the ex-
amination of specific issues relating to a tax return
before the return is timely filed and to obtain an
LMSB Pre-Filing Agreement with respect to that
issue. See Rev. Proc. 2001–22, page 745.
Section 471.—General Rule for
Inventories
26 CFR 1.471–3: Inventories at cost.
(Also §§ 61, 111, 472; 1.472–2.)
Rev. Rul. 2001–8
ISSUE
What is the proper method of account-
ing for payments made or received with
respect to “floor stocks”?
BACKGROUND
A floor stocks provision, which applies
to a designated type of goods held in inven-
tory (floor stocks) on a particular date (the
“floor stocks date”), is sometimes enacted
in conjunction with a tax, change in tax
rate, or subsidy that is imposed upon simi-
lar goods purchased or produced on or after
that date. The purpose of a floor stocks pro-
vision is to ensure that all goods sold on or
after the floor stocks date are subjected to
the same total amount of tax or subsidy,
regardless of whether the items sold were
goods held as floor stocks on the floor
stocks date or goods purchased or pro-
duced after that date. This equal treatment
is achieved by imposing with respect to
goods held on the floor stocks date an
amount, to be either paid or received, that
will serve to eliminate any differential in
total tax or subsidy that would otherwise
exist relative to goods subsequently pur-
chased or produced.
The Internal Revenue Service, in two
previous revenue rulings, has addressed
the proper tax treatment of payments
received with respect to floor stocks. Rev.
Rul. 88–95, 1988–2 C.B. 28, and Rev.
Rul. 85–30, 1985–1 C.B. 20, generally
provide that payments received with
respect to floor stocks should be treated as
either an item of gross income or a reduc-
tion in inventory, depending on whether
the cost of the goods to which the pay-
ments relate remains in ending inventory
under the taxpayer’s cost flow assump-
tion. However, questions continue to
arise about how the “goods to which the
payments relate” should be determined,
particularly when the last-in, first-out
(LIFO) inventory method is used.
The purpose of this revenue ruling is to
clarify that payments made or received
with respect to floor stocks must be
accounted for as adjustments to the invoice
price or production cost of the goods phys-
ically held on the floor stocks date to which
the payments relate, rather than as an
adjustment to the tax basis (carrying value)
of those goods. This revenue ruling also
provides, for costing purposes, an optional
simplifying assumption for LIFO taxpay-
ers regarding identification of the goods
physically held on the floor stocks date to
which the floor stocks payments relate.
LAW
Section 471(a) of the Internal Revenue
Code provides that inventories must be taken
on such basis as the Secretary may prescribe
as conforming as nearly as may be to the best
accounting practice in the trade or business
and as most clearly reflecting income.
Section 1.471–3 of the Income Tax
Regulations provides rules for determin-
ing the cost of merchandise on hand at the
beginning of the taxable year and the cost
of merchandise purchased or produced
since the beginning of the taxable year.
Section 472(a) provides that taxpayers
may use the LIFO method of inventorying
goods in accordance with such regulations
as the Secretary may prescribe as neces-
sary in order that the use of such method
may clearly reflect income.
Section 472(b) and § 1.472–1 require
taxpayers using the LIFO inventory
method to treat goods remaining on hand
at the close of the taxable year as being:
first, those included in the opening inven-
tory of the taxable year, in the order of
acquisition and to the extent thereof; and
second, those acquired during the taxable
year. Section 472(b) and § 1.472–2
require taxpayers using the LIFO method
to inventory their goods at cost.
Section 263A(a) provides, in the case
of property that is inventory in the hands
of the taxpayer, that the direct costs and an
allocable share of the indirect costs
(including taxes) of the property must be
included in inventory costs.
Section 1.263A–1(e)(3)(i) provides that
indirect costs are properly allocable to
property produced or property acquired
for resale when the costs directly benefit
or are incurred by reason of the perfor-
mance of production or resale activities.
Section 1.263A–2(a)(3)(iii) provides
that producers must capitalize all indirect
costs incurred subsequent to completion
of production that are properly allocable
to the property produced.
February 26, 20017262001–9 I.R.B.

Section 61(a) provides generally that
gross income means all income from
whatever source derived.
Rev. Rul. 85–30 addresses the income
tax treatment of payments received by a
retail dealer of highway vehicle tires as a
reimbursement of federal excise taxes
previously paid with respect to floor
stocks of certain tires held on the floor
stocks date. Rev. Rul. 85–30 holds that
the excise tax reimbursement should be
treated as a reduction in ending inventory
to the extent that it relates to tires the cost
of which remains in ending inventory.
Rev. Rul. 85–30 further holds that the
excise tax reimbursement should be treat-
ed as an item of gross income to the extent
that it relates to tires the cost of which
does not remain in ending inventory and
has been included in cost of goods sold.
Rev. Rul. 88–95 addresses the income
tax treatment of two types of payments
received by a textile manufacturer that
were attributable to domestically produced
raw cotton that was either held as of a spe-
cific date (i.e., floor stocks) or purchased
subsequent to that date. Rev. Rul. 88–95
holds that both types of payments should
be treated as a reduction in the inventory
cost of the cotton giving rise to the pay-
ments to the extent that the cost is deemed
to remain in inventory at the date the pay-
ments are accrued under the taxpayer’s
method of accounting. Rev. Rul. 88–95
further holds that the payments should be
treated as an item of gross income to the
extent that the cost of the cotton giving rise
to the payments is deemed to have been
relieved from inventory and accounted for
through cost of goods sold as of the date
the payments are accrued under the taxpay-
er’s method of accounting.
Mohawk Liqueur Corp. v. United
States, 324 F.2d 241 (6th Cir. 1963), cert.
denied,377 U.S. 905 (1964), addressed
the specific question of whether the tax-
payer, a manufacturer of alcoholic bever-
ages, could deduct floor stocks taxes on
distilled spirits instead of including them
in inventory in accordance with its previ-
ous practice. The court held that consis-
tency in inventory practice is required. As
a result, the taxpayer was not allowed to
deviate from its prior practice of including
floor stocks taxes in inventory.
Turtle Wax, Inc. v. Commissioner, 43
T.C. 460 (1965), held that refunds of fed-
eral excise taxes on watches were taxable
income to the extent that the taxpayer had
derived a tax benefit related to the pay-
ment of such taxes from deductions taken
in prior years.
ANALYSIS
The inventory accounting rules gener-
ally require a taxpayer to first determine
the cost of goods purchased or produced
during a taxable year and then to allocate
that cost between goods sold during that
taxable year and goods that remain in end-
ing inventory based on the taxpayer’s
inventory cost flow assumption. See
§§ 1.471–3 and 1.263A–1(c)(1).
Payments made with respect to floor
stocks (e.g., taxes) represent an inventori-
able cost of the goods to which the pay-
ments relate under §§ 471 and 263A. See
§ 263A(a). Similarly, payments received
with respect to floor stocks (e.g., tax
refunds or subsidy payments) represent a
reduction in the purchase price or produc-
tion cost of the goods giving rise to the
payments. SeeRev. Rul. 85–30; Rev. Rul.
88–95.
Thus, consistent with the requirements
of §§ 1.471–3 and 1.263A–1, payments
made or received with respect to floor
stocks must be accounted for as adjust-
ments to the cost of the goods physically
held on the floor stocks date to which the
payments relate. “Cost” for this purpose
means invoice price or production cost.
The resultant effect on either gross
income or inventory depends on the
extent to which the cost of the goods
physically held on the floor stocks date
remains in ending inventory. Whether the
cost of the goods physically held on the
floor stocks date remains in ending inven-
tory is determined by applying the tax-
payer’s inventory cost flow assumption
(e.g., LIFO, first-in, first-out (FIFO), or a
specific-goods method) to identify the
particular costs that are deemed to be con-
tained in ending inventory. See Rev. Rul.
85–30; Rev. Rul. 88–95.
Therefore, to the extent that the cost of
the goods associated with the floor stocks
payments has been included in cost of
goods sold under the taxpayer’s inventory
cost flow assumption, payments made (or
received) with respect to floor stocks
increase (or decrease) cost of goods sold.
However, payments received that relate to
goods the cost of which has been included
in cost of goods sold in a previous year
under the taxpayer’s inventory cost flow
assumption increase gross income, con-
sistent with operation of the tax benefit
rule as illustrated in Turtle Wax, 43 T.C. at
466. For taxpayers using a LIFO invento-
ry method, this treatment ensures that
payments made or received with respect
to floor stocks do not affect historical
LIFO cost increments that contain the cost
of unrelated goods.
Similarly, to the extent that the cost of
the goods associated with the floor stocks
payments remains in ending inventory
under the taxpayer’s inventory cost flow
assumption, payments made (or received)
with respect to floor stocks increase (or
decrease) ending inventory. For taxpayers
using a LIFO inventory method, pay-
ments made or received with respect to
floor stocks affect ending inventory only
when one or more LIFO cost increments
that remain in ending inventory, as com-
puted under § 472(b) and § 1.472–1,
include the cost of the goods physically
held on the floor stocks date. For taxpay-
ers using a FIFO inventory method, pay-
ments made or received with respect to
floor stocks generally are included in cost
of goods sold and not ending inventory
because the goods physically held on the
floor stocks date to which the payments
relate usually do not remain in FIFO
inventory at the end of the year.
Mohawk Liqueurwas decided on grounds
of consistency in inventory practice and did
not address the issue considered in this rev-
enue ruling, i.e.,the proper method of
accounting for floor stocks taxes under a par-
ticular inventory cost flow assumption.
EXAMPLES
The following four examples illustrate
the proper income tax accounting treat-
ment of payments made and received with
respect to floor stocks:
Example 1. Xfiles returns on a calendar year
basis using an accrual method of accounting and the
double-extension, dollar-value LIFO method of
inventorying goods. Xhas only one item, Product 1,
in its dollar-value LIFO pool. The federal excise tax
on Product 1 decreases on January 1, 2000, from 10¢
to 8¢ per unit. Simultaneously, a floor stocks provi-
sion is implemented that entitles merchants holding
Product 1 in inventory on January 1, 2000, upon
which an excise tax of 10¢ per unit had previously
been paid, to a refund of 2¢ per unit. Xheld 10,000
units of Product 1 on January 1, 2000, and received
an associated $200 excise tax refund in 2000. The
10,000 units of Product 1 that Xphysically held on
January 1, 2000, were purchased in 1999. X’s
December 31, 1999, LIFO inventory consists of a
2001–9 I.R.B.727February 26, 2001

1995 LIFO cost increment that includes the cost of
3,000 units of Product 1 and a 1999 LIFO cost incre-
ment that contains the cost associated with an addi-
tional 7,000 units. These 1995 and 1999 increments
remain in X’s 2000 LIFO ending inventory.
Xmust account for the $200 excise tax refund in
2000 as follows: The $200 refund represents a
reduction in the invoice price of the 10,000 units of
Product 1 purchased in 1999 and held on January 1,
2000. Of these 10,000 units, only the cost of 7,000
units remains in X’s 2000 ending inventory under X’s
LIFO inventory cost flow assumption as part of a
1999 increment; thus, $140 of the $200 refund
(7,000/10,000 x $200 = $140) is allocated to these
units, resulting in a $140 decrease in 2000 ending
inventory. ($140 must be subtracted from the cur-
rent-year cost of the 1999 LIFO cost increment and
the index (i.e., the ratio of total current-year cost to
total base-year cost) for the 1999 increment would
be recalculated). The cost of the remaining 3,000 of
these 10,000 units was included in cost of goods sold
in 1999 under X’s LIFO inventory cost flow assump-
tion. Thus, $60 of the refund (3,000/10,000 x $200
= $60) must be included in gross income in 2000.
Example 2. Yfiles returns on a calendar year basis
using an accrual method of accounting and the dou-
ble-extension, dollar-value LIFO method of invento-
rying goods. A floor stocks provision is implemented
on July 1, 2000, that entitles merchants holding
Product 2 in inventory on that date to receive invento-
ry protection (subsidy) payments of $1 per unit.Y
held 50,000 units of Product 2 on July 1, 2000, and
received an associated $50,000 inventory protection
payment in 2000. The 50,000 units of Product 2 that
Yphysically held on July 1, 2000, were purchased in
2000. The cost of these units does not remain in Y’s
2000 LIFO ending inventory, which consists of 1996,
1997, and 1998 LIFO cost increments.
Ymust include the entire $50,000 inventory pro-
tection payment as a decrease in 2000 cost of goods
sold because the cost of the associated goods was
included in 2000 cost of goods sold and thus does
not remain in 2000 ending inventory under Y’s LIFO
inventory cost flow assumption.
Example 3. Zfiles returns on a calendar year basis
using an accrual method of accounting and the double-
extension, dollar-value LIFO method of inventorying
goods. Zhas only one item, Product 3, in its dollar-
value LIFO pool. The federal excise tax on Product 3
increases on January 1, 2000, from 6¢ to 10¢ per unit.
Simultaneously, a floor stocks tax provision is imple-
mented that requires producers holding Product 3 in
inventory on January 1, 2000, upon which an excise tax
of 6¢ per unit had previously been paid, to pay an addi-
tional excise tax of 4¢ per unit. Zhas 100,000 units of
Product 3 on hand on January 1, 2000, and pays the
additional excise tax of $4,000 in 2000. The 100,000
units of Product 3 that Zphysically held on January 1,
2000, were produced in 1999 and subjected to a 6¢ per
unit excise tax in 1999. Z’s December 31, 1999, LIFO
inventory consists of LIFO cost increments from 1990,
1993, and 1996. The cost of these 100,000 units does
not remain in Z’s 2000 LIFO ending inventory because
Zdid not add a LIFO cost increment in 1999.
Zmust include the entire $4,000 floor stocks tax
in cost of goods sold in 2000 because the production
cost of the associated goods was included in cost of
goods sold in 1999 and thus does not remain in 2000
ending inventory under Z’s LIFO inventory cost
flow assumption.
Example 4. The facts are the same as Example 3,
except that the cost of 60,000 of the 100,000 units of
Product 3 that Zproduced in 1999 and physically
held on January 1, 2000, is included in a 1999 LIFO
cost increment. The cost of these 60,000 units
remains in Z’s 2000 LIFO ending inventory because
Zdid not have an inventory decrement in 2000.
Zmust account for the $4,000 floor stocks tax in
2000 as follows: $2,400 must be assigned as an
increase in the production cost of the 60,000 units held
on January 1, 2000, that were produced in 1999 the
cost of which remains in 2000 ending inventory under
Z’s LIFO inventory cost flow assumption as part of a
1999 LIFO cost increment (60,000/100,000 x $4,000 =
$2,400). This adjustment results in an increase in 2000
ending inventory ($2,400 must be added to the current-
year cost of the 1999 LIFO cost increment and the
index (i.e., the ratio of total current-year cost to total
base-year cost) for the 1999 increment would be recal-
culated). The remaining $1,600 of the floor stocks tax
must be included in cost of goods sold in 2000 because
the production cost of the 40,000 units of Product 3
produced in 1999 with which it is associated was
included in 1999 cost of goods sold and thus does not
remain in 2000 ending inventory under Z’s LIFO
inventory cost flow assumption.
HOLDING
Payments made or received with respect
to floor stocks must be accounted for as
adjustments to the invoice price or produc-
tion cost of the goods physically held on
the floor stocks date to which the payments
relate. Payments made or received with
respect to floor stocks affect inventory val-
uation only to the extent that the invoice
price or production cost of the goods on
hand that gave rise to the payments has not
been included in cost of goods sold but
remains in ending inventory under the tax-
payer’s inventory cost flow assumption.
Payments made or received with respect to
floor stocks affect gross income to the
extent that the invoice price or production
cost of the goods on hand that gave rise to
the payments has been included in cost of
goods sold and thus is not included in end-
ing inventory under the taxpayer’s invento-
ry cost flow assumption.
SIMPLIFYING ASSUMPTION
REGARDING GOODS ON HAND
Identification of the goods that were
physically held on the floor stocks date
may be unduly burdensome for some tax-
payers, particularly LIFO taxpayers with
large inventories of fungible goods. As a
matter of administrative convenience, the
Service will permit LIFO taxpayers to
assume that the goods physically held on
the floor stocks date are those most
recently purchased or produced. This
simplifying assumption for payments
made or received with respect to floor
stocks is a method of accounting that must
be applied on a consistent basis and used
only for the purpose of identifying the
goods physically held on the floor stocks
date for costing purposes.
PROSPECTIVE APPLICATION
Pursuant to the authority contained in
§ 7805(b) of the Code, the conclusions in
this revenue ruling will not be applied
adversely to challenge a consistent treat-
ment by taxpayers of payments made or
received with respect to floor stocks on or
before February 26, 2001.
CHANGE IN METHOD OF
ACCOUNTING
A change to comply with this revenue
ruling is a change in method of account-
ing to which the provisions of § 446 and
the regulations thereunder apply. A tax-
payer wanting to change its method of
accounting to conform with the holding
in this revenue ruling or to elect the sim-
plifying assumption must follow the
automatic change in accounting method
provisions of Rev. Proc. 99–49, 1999–2
C.B. 725 (or its successor), provided the
change is made for the first taxable year
in which payments are made or received
with respect to floor stocks subsequent to
February 26, 2001, with the following
modifications: (1) the scope limitations
in section 4.02 of Rev. Proc. 99–49 do
not apply (if the taxpayer is under exam-
ination, before an appeals office, or
before a federal court with respect to any
income tax issue, the taxpayer must pro-
vide a copy of the Form 3115,
Application for Change in Accounting
Method, to the examining agent, appeals
officer, or counsel for the government, as
appropriate, at the same time that it files
the copy of the Form 3115 with the
national office); (2) in lieu of the label
required by section 6.02(3) of Rev. Proc.
99–49, a taxpayer should write “Filed
pursuant to Rev. Rul. 2001–8” at the top
of its Form 3115; (3) the change in
method of accounting to comply with the
holding in this revenue ruling is to be
made using a cut-off method relative to
payments made or received with respect
to floor stocks on or before February 26,
2001 (see section 2.06 of Rev. Proc.
99–49); (4) a taxpayer should clearly
February 26, 20017282001–9 I.R.B.

indicate on its Form 3115 or in an attach-
ment thereto if it is electing to use the
simplifying assumption to identify the
goods physically held on the floor stocks
date for costing purposes.
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 85–30 is clarified to reflect
that the reimbursement of excise taxes is
treated as a reduction in the invoice price
of the tires physically held on the floor
stocks date.
Rev. Rul. 88–95 is clarified to reflect
that the inventory protection payments are
treated as a reduction in the invoice price
of the cotton physically held on the floor
stocks date.
Rev. Proc. 99–49 is modified and
amplified to include this automatic
change in section 9 of the APPENDIX.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Alan J. Tomsic of the Office of
Associate Chief Counsel (Income Tax and
Accounting). For further information
regarding this revenue ruling, contact Mr.
Tomsic at (202) 622-4970 (not a toll-free
call).
Section 472.—Last-in, First-out
Inventories
26 CFR 1.472–2: Requirements incident to adoption
and use of LIFO inventory method.
Must payments made or received with respect to
floor stocks be accounted for as adjustments to the in-
voice price or production cost of the goods physically
held on the floor stocks date to which the payments re-
late, rather than as adjustment to the tax basis (carrying
value) of those goods. See Rev. Rul. 2001–8, page 726.
Section 482.—Allocation of
Income and Deductions Among
Taxpayers
What are the procedures for a taxpayer subject to
the jurisdiction of the Large and Mid-Size Business
Division (LMSB) of the Service to request the ex-
amination of specific issues relating to a tax return
before the return is timely filed and to obtain an
LMSB Pre-Filing Agreement with respect to that
issue. See Rev. Proc. 2001–22, page 745.
Section 1001.—Determination
of Amount of and Recognition of
Gain or Loss
26 CFR 1.1001–3: Modification of debt
instruments.
The revenue procedure, which modifies and su-
persedes Rev. Proc. 99–18, provides for an elec-
tion that will allow taxpayers to treat a debt substi-
tution, in certain circumstances, as a realization
event even though it does not result in a significant
modification under section 1.1001–3 of the In-
come Tax Regulations. See Rev. Proc. 2001–21,
page 742.
Section 1275.—Other
Definitions and Special Rules
26 CFR 1.1275–2: Special rules relating to debt
instruments.
The revenue procedure, which modifies and su-
persedes Rev. Proc. 99–18, provides for an election
that will allow taxpayers to treat a debt substitution,
in certain circumstances, as a realization event even
though it does not result in a significant modifica-
tion under section 1.1001–3 of the Income Tax Reg-
ulations. See Rev. Proc. 2001–21, page 742.
Section 7121.—Closing
Agreements
26 CFR 301.7121–1: Closing agreements.
What are the procedures for a taxpayer subject
to the jurisdiction of the Large and Mid-Size
Business Division (LMSB) of the Service to re-
quest the examination of specific issues relating
to a tax return before the return is timely filed
and to obtain an LMSB Pre-Filing Agreement
with respect to that issue. See Rev. Proc.
2001–22, page 745.
2001–9 I.R.B.729February 26, 2001

February 26, 20017302001–9 I.R.B.
Intermediary Transactions Tax
Shelter
Notice 2001–16
The Internal Revenue Service and the
Treasury Department have become aware
of certain types of transactions, described
below, that are being marketed to taxpay-
ers for the avoidance of federal income
taxes. The Service and Treasury are issu-
ing this notice to alert taxpayers and their
representatives of certain responsibilities
that may arise from participation in these
transactions.
These transactions generally involve four
parties: seller (X) who desires to sell stock
of a corporation (T), an intermediary corpo-
ration (M), and buyer (Y) who desires to
purchase the assets (and not the stock) of T.
Pursuant to a plan, the parties undertake the
following steps. X purports to sell the stock
of T to M. T then purports to sell some or
all of its assets to Y. Y claims a basis in the
T assets equal to Y’s purchase price. Under
one version of this transaction, T is includ-
ed as a member of the affiliated group that
includes M, which files a consolidated
return, and the group reports losses (or
credits) to offset the gain (or tax) resulting
from T’s sale of assets. In another form of
the transaction, M may be an entity that is
not subject to tax, and M liquidates T (in a
transaction that is not covered by
§ 337(b)(2) of the Internal Revenue Code or
§ 1.337(d)–4) of the Income Tax
Regulations, resulting in no reported gain
on M’s sale of T’s assets.
Depending on the facts of the particular
case, the Service may challenge the pur-
ported tax results of these transactions on
several grounds, including but not limited
to one of the following: (1) M is an agent
for X, and consequently for tax purposes
T has sold assets while T is still owned by
X, (2) M is an agent for Y, and conse-
quently for tax purposes Y has purchased
the stock of T from X, or (3) the transac-
tion is otherwise properly recharacterized
(e.g., to treat X as having sold assets or to
treat T as having sold assets while T is still
owned by X). Alternatively, the Service
may examine M’s consolidated group to
determine whether it may properly offset
losses (or credits) against the gain (or tax)
from the sale of assets.
The Service may impose penalties on
participants in these transactions, or, as
applicable, on persons who participate in
the promotion or reporting of these trans-
actions, including the accuracy-related
penalty under § 6662, the return preparer
penalty under § 6694, the promoter penal-
ty under § 6700, and the aiding and abet-
ting penalty under § 6701.
Transactions that are the same as or
substantially similar to those described in
the Notice 2001–16 are identified as “list-
ed transactions” for the purposes of
§ 1.6011–4T(b)(2) of the Temporary
Income Tax Regulations and
§ 301.6111–2T(b)(2) of the Temporary
Procedure and Administration Regula-
tions. See also § 301.6112–1T, A–4. It
should be noted that, independent of their
classification as “listed transactions” for
purposes of §§ 1.6011–4T(b)(2) and
301.6111–2T(b)(2), such transactions
may already be subject to the tax shelter
registration and list maintenance require-
ments of §§ 6111 and 6112 under the reg-
ulations issued in February 2000
(§§ 301.6111–2T and 301.6112–1T, A–4).
Persons required to register these tax shel-
ters who have failed to register the shel-
ters may be subject to the penalty under
§ 6707(a) and to the penalty under
§ 6708(a) if the requirements of § 6112
are not satisfied.
For further information regarding this
notice, contact Theresa Abell, of the
Office of Associate Chief Counsel
(Corporate), at (202)622-7700 (not a toll-
free call).
Contingent Liability Tax Shelter
Notice 2001–17
The Internal Revenue Service and the
Treasury Department have become aware
of certain types of transactions, described
below, that are being marketed to taxpay-
ers for the purpose of accelerating and, in
some cases, duplicating tax deductions.
This notice is intended to alert taxpayers
and their representatives that the losses
generated by such transactions are not
properly allowable for federal income tax
purposes. This notice also alerts taxpay-
ers and their representatives of certain
responsibilities that may arise from partic-
ipation in such transactions.
FACTS
These transactions take several forms
but, in all cases, involve the transfer of a
high basis asset (i.e., an asset with a basis
that approximates its fair market value) to
a corporation purportedly in exchange for
stock of the transferee corporation, and
the transferee corporation’s assumption of
a liability (such as a liability for deferred
compensation or other deferred employee
benefits or an obligation for environmen-
tal remediation) that the transferor has not
yet taken into account for federal income
tax purposes. The transferor typically
remains liable on the underlying obliga-
tion. The basis and fair market value of
the transferred asset, which may be a
security of another member of the same
affiliated group of corporations, are gen-
erally only marginally greater than the
present value of the assumed liability.
Therefore, the value of the stock of the
transferee received by the transferor is
minimal relative to the basis and fair mar-
ket value of the asset transferred to the
transferee corporation.
The transaction is purported to qualify as
an exchange under § 351 of the Internal
Revenue Code, with the intent that the basis
of the stock that the transferor receives
from the transferee corporation will be
equal to the basis of the transferred asset,
unreduced by the liability assumed by the
transferee corporation. Under § 358(a), a
transferor’s basis in stock received in a
§ 351 exchange is equal to the transferor’s
basis in property exchanged for such stock,
subject to certain adjustments, including a
reduction for any money or other property
received by the transferor. Under
§ 358(d)(1), liabilities assumed by the
transferee corporation are treated as money
received by the transferor. Under certain
circumstances, however, liabilities assumed
by a transferee corporation in a § 351
exchange are not treated as money received
by the transferor and thus do not reduce the
basis of the stock received in the exchange.
See§ 358(d)(2); § 357(c)(3).
The transferor typically sells the stock
of the transferee corporation for its fair
market value within a relatively short
Part III. Administrative, Procedural, and Miscellaneous

period of time after the purported § 351
exchange and claims a tax loss in an
amount approximating the present value
of the liability assumed by the transferee
corporation. In the case of a transaction
involving members of an affiliated group
that has elected to file a consolidated
return, the transaction is structured with
the intention of avoiding the loss disal-
lowance rule of § 1.1502–20 of the
Income Tax Regulations. In addition to
the transferor’s purported loss on the sale
of the stock of the transferee corporation,
the transferee corporation may claim a
§ 162 deduction with respect to payments
on the liability.
Taxpayers assert several business pur-
poses for these transactions. However,
the Service and the Treasury are not aware
of any case in which a taxpayer has shown
a legitimate non-tax business reason to
carry out the combination of steps
described above. Moreover, the Service
and the Treasury believe that any business
purposes taxpayers may assert for certain
aspects of these transactions are far out-
weighed by the purpose to generate
deductible losses for federal income tax
purposes.
ANALYSIS
Depending on the facts of the particular
case, the Service intends to disallow loss-
es claimed by the transferor with respect
to these transactions. For transfers after
October 18, 1999, the Service will assert
that such losses are disallowed because
the transferor’s basis in the stock received
is reduced under § 358(h) (reducing stock
basis by the amount of certain liabilities).
For transfers on or before October 18,
1999, as well as for transfers after October
18, 1999, that are not subject to § 358(h),
the Service will disallow such losses for
one or more reasons, including but not
limited to the following: (1) that the pur-
ported § 351 exchange lacks sufficient
business purpose to qualify as a § 351
exchange; (2) that the transfer of the asset
to the transferee corporation is not, in sub-
stance, a transfer of property in exchange
for stock within the meaning of § 351, but
instead is either an agency arrangement
for the transferor or simply a payment to
the transferee for its assumption of a lia-
bility; (3) that the purported § 351
exchange constitutes an acquisition of
control of the transferee corporation for
the principal purpose of tax avoidance
within the meaning of § 269(a) and thus
the purported loss should be disallowed
under § 269(a); (4) that the principal pur-
pose of the transferee’s assumption of the
liability was a purpose to avoid federal
income tax or was not a bona fidebusi-
ness purpose within the meaning of
§ 357(b)(1), and thus the assumption of
the liability should be treated as money
received by the transferor that reduces its
basis in the transferee stock; (5) that the
purported loss on the sale of the stock of
the transferee corporation is disallowed or
limited by the loss disallowance rules of
§ 1.1502–20, including the anti-avoidance
rule in § 1.1502–20(e) and the duplicated
loss rule in § 1.1502–20(c); (6) that the
purported loss on the sale of the stock of
the transferee corporation is not a bona
fideloss actually sustained by the trans-
feror, as required by § 1.165–1(b); and
(7) that the overall transaction lacks suffi-
cient economic substance to be respected
for federal income tax purposes, see ACM
Partnership v. Commissioner, 157 F.3d
231 (3d Cir. 1998), cert. denied, 526 U.S.
1017 (1999).
In addition, any deduction claimed by a
transferee corporation for payments on a
liability assumed in a transaction similar
to that described above may, depending
on the facts of the particular case, be sub-
ject to disallowance on one or more of
several possible grounds, including that
the payments are not for ordinary and nec-
essary business expenses of the transferee
corporation. Rev. Rul. 95–74, 1995–2
C.B. 36, which addressed the treatment of
certain environmental liabilities assumed
by a transferee of a manufacturing busi-
ness, does not apply to the deductibility
by the transferee of liabilities assumed in
a transaction of the type described in this
notice because Rev. Rul. 95–74 dealt with
liabilities assumed by a transferee corpo-
ration in connection with the transfer of
substantially all the assets associated with
the operation of a manufacturing business
to the transferee corporation in a transac-
tion that qualified as a § 351 exchange.
The Service may impose penalties on
participants in these transactions, or, as
applicable, on persons who participate in
the promotion or reporting of these trans-
actions, including the accuracy-related
penalty under § 6662, the return preparer
penalty under § 6694, the promoter penal-
ty under § 6700, and the aiding and abet-
ting penalty under § 6701.
Transactions that are the same as or
substantially similar to those described in
this Notice 2001–17 (including transac-
tions utilizing partnerships) are identified
as “listed transactions” for the purposes of
§ 1.6011–4T(b)(2) of the Temporary
Income Tax Regulations and
§ 301.6111–2T(b)(2) of the Temporary
Procedure and Administration Regula-
tions. See also§ 301.6112–1T, A–4. It
should be noted that, independent of their
classification as “listed transactions” for
purposes of §§ 1.6011–4T(b)(2) and
301.6111–2T(b)(2), such transactions
may already be subject to the tax shelter
registration and list maintenance require-
ments of §§ 6111 and 6112 under the reg-
ulations issued in February 2000
(§§ 301.6111–2T and 301.6112–1T, A–4),
as well as the regulations issued in 1984
and amended in 1986 (§§ 301.6111–1T
and 301.6112–1T, A–3). Persons required
to register these tax shelters who have
failed to register the shelters may be sub-
ject to the penalty under § 6707(a) and to
the penalty under § 6708(a) if the require-
ments of § 6112 are not satisfied.
The principal author of this notice is
Theresa Abell, of the Office of Associate
Chief Counsel (Corporate). For further
information regarding this notice, contact
Ms. Abell at (202) 622-7700 (not a toll-
free call).
Lease Exception to the Tax
Shelter Regulations
Notice 2001–18
This notice provides an exception from
the registration requirements under
§ 6111(d) of the Internal Revenue Code
and the list maintenance requirements
under § 6112 for certain leasing transac-
tions, except as may be provided in subse-
quent guidance.
BACKGROUND
Section 301.6111–2T of the temporary
Procedure and Administration Regula-
tions provides rules regarding the registra-
tion of confidential corporate tax shelters
under § 6111(d). A confidential corporate
tax shelter is any entity, plan, arrange-
ment, or transaction that satisfies the fol-
2001–9 I.R.B.731February 26, 2001

February 26, 20017322001–9 I.R.B.
lowing three requirements: (1) a signifi-
cant purpose of the structure of the trans-
action is the avoidance or evasion of fed-
eral income tax for a direct or an indirect
corporate participant; (2) the transaction
is offered to any potential participant
under conditions of confidentiality; and
(3) the tax shelter promoters may receive
fees in excess of $100,000 in the aggre-
gate. Section 301.6111–2T(b) provides
that the avoidance or evasion of federal
income tax is considered a significant pur-
pose of the structure of the transaction if
the transaction is a listed transaction
under § 301.6111–2T(b)(2), lacks eco-
nomic substance under § 301.6111–2T
(b)(3), or is otherwise a tax-structured
transaction under § 301.6111–2 T(b)(4).
However, a transaction described in
§ 301.6111–2T(b)(3) or (4) does not need
to be registered if, under § 301.6111–2T
(b)(5)(ii), the Internal Revenue Service
makes a determination by published guid-
ance that a transaction is not subject to the
registration requirements under § 6111(d).
Section 301.6112–1T provides rules
regarding the requirement to maintain
lists of investors in potentially abusive tax
shelters under § 6112. A potentially abu-
sive tax shelter under § 6112 includes any
investment that is required to be regis-
tered with the Internal Revenue Service as
a tax shelter under § 6111, and any other
entity, plan, or arrangement, if specified in
regulations, that has a potential for tax
avoidance or evasion. Section
301.6112–1T A–4 provides that for pur-
poses of the list requirement, a tax shelter
includes any transaction a significant pur-
pose of the structure of which is the
avoidance or evasion of federal income
tax within the meaning of
§§ 6111(d)(1)(A) and 301.6111–2T(b)
(whether or not offered to any direct or
indirect corporate participant). If a trans-
action is exempted from registration
under § 301.6111–2T(b)(5), the transac-
tion is also exempted from the list mainte-
nance requirement under § 6112, unless
the transaction is subject to registration
under § 6111(c).
DISCUSSION
Since the issuance of §§ 301.6111–2T
and 301.6112–1T, the U.S. Treasury
Department and the Internal Revenue
Service have received comments asking
that certain customary leasing transac-
tions involving tangible personal property
be excepted from the registration require-
ment under § 6111(d) and the list mainte-
nance requirement under § 6112. After
consideration of those comments,
Treasury and the Service have determined
that exemptive relief for certain leasing
transactions is consistent with the objec-
tives of the registration requirements
under § 6111(d) and the list maintenance
requirements under § 6112.
Under § 301.6111–2T(b)(5)(ii), no per-
son shall be required to register under
§ 6111(d) a transaction that satisfies the
following requirements: (1) the transac-
tion is a lease or sale leaseback between
an owner-lessor of tangible personal prop-
erty and a lessee who is the user of the
property, (2) the terms of the lease
(including any related agreements) are
consistent with customary commercial
practice for the leasing of similar items of
property, (3) the transaction qualifies as a
lease for federal income tax purposes
under Rev. Proc. 75–21, 1975–1 C.B. 715
(or its successor), or under generally
accepted case law principles, (4) the
lessor and lessee agree to consistently
report the transaction as a lease for feder-
al income tax purposes, and (5) the trans-
action is not the same as or substantially
similar to a listed transaction (or part of a
listed transaction) under § 301.6111–2T
(b)(2), including a “lease strip” described
in Notice 95–53, 1995–2 C.B. 334, or a
“LILO” (lease in / lease out) transaction
described in Rev. Rul. 99–14, 1999–1
C.B. 835. Furthermore, no list needs to be
maintained under § 6112 for transactions
satisfying this leasing exception that are
not otherwise subject to registration under
§ 6111(c).
EFFECTIVE DATE
This notice applies to leasing transac-
tions entered into after February 28, 2000.
DRAFTING INFORMATION
The principal author of this notice is
Catherine Moore of the Office of
Associate Chief Counsel (Passthroughs
and Special Industries). For further infor-
mation regarding this notice, contact
Catherine Moore at (202) 622-3080 (not a
toll-free call).
26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement;
determination of correct tax liability.
(Also Part I, §§ 61, 280F; 1.61–21, 1.280F–7.)
Rev. Proc. 2001–19
SECTION 1. PURPOSE
This revenue procedure provides: (1)
limitations on depreciation deductions for
owners of passenger automobiles first
placed in service during calendar year
2001, including separate limitations on
passenger automobiles designed to be
propelled primarily by electricity and
built by an original equipment manufac-
turer (electric automobiles); (2) the
amounts to be included in income by
lessees of passenger automobiles first
leased during calendar year 2001, includ-
ing separate inclusion amounts for electric
automobiles; and (3) the maximum
allowable value of employer-provided
automobiles first made available to
employees for personal use in calendar
year 2001 for which the vehicle cents-per-
mile valuation rule provided under
§ 1.61–21(e) of the Income Tax
Regulations may be applicable. The
tables detailing these depreciation limita-
tions and lessee inclusion amounts reflect
the automobile price inflation adjustments
required by § 280F(d)(7) of the Internal
Revenue Code. The maximum allowable
automobile value for applying the vehicle
cents-per-mile valuation rule reflects the
automobile price inflation adjustment of
§ 280F(d)(7) as required by § 1.61–21(e)
(1)(iii)(A).
SECTION 2. BACKGROUND
For owners of automobiles, § 280F(a)
imposes dollar limitations on the depreci-
ation deduction for the year that the auto-
mobile is placed in service and each suc-
ceeding year. In the case of electric
automobiles placed in service after
August 5, 1997, and before January 1,
2005, § 280F(a)(1)(C) requires tripling of
these limitation amounts. Section
280F(d)(7) requires the amounts allow-
able as depreciation deductions to be
increased by a price inflation adjustment
amount for passenger automobiles placed
in service after 1988.
For leased automobiles, § 280F(c)
requires a reduction in the deduction

2001–9 I.R.B.733February 26, 2001
allowed to the lessee of the automobile.
The reduction must be substantially
equivalent to the limitations on the depre-
ciation deductions imposed on owners of
automobiles. Under § 1.280F–7(a), this
reduction requires the lessees to include in
gross income an inclusion amount deter-
mined by applying a formula to the
amount obtained from a table. There is a
table for lessees of electric automobiles
and a table for all other passenger auto-
mobiles. Each table shows inclusion
amounts for a range of fair market values
for each tax year after the automobile is
first leased.
For automobiles first provided by
employers to employees that meet the
requirements of § 1.61–21(e)(1), the value
to the employee of the use of the automo-
bile may be determined under the vehicle
cents-per-mile valuation rule of
§ 1.61–21(e). Section 1.61–21(e)(1)
(iii)(A) provides that for an automobile
first made available after 1988 to any
employee of the employer for personal
use, the value of the use of the automobile
may not be determined under the vehicle
cents-per-mile valuation rule for a calen-
dar year if the fair market value of the
automobile (determined pursuant to
§ 1.61–21(d)(5)(i) through (iv)) on the
first date the automobile is made available
to the employee exceeds $12,800 as
adjusted by § 280F(d)(7).
SECTION 3. SCOPE AND OBJECTIVE
01. The limitations on depreciation
deductions in section 4.02 of this revenue
procedure apply to automobiles (other
than leased automobiles) that are placed
in service in calendar year 2001 and con-
tinue to apply for each tax year that the
automobile remains in service.
02. The tables in section 4.03 of this
revenue procedure apply to leased auto-
mobiles for which the lease term begins in
calendar year 2001. Lessees of such auto-
mobiles must use these tables to deter-
mine the inclusion amount for each tax
year during which the automobile is
leased.
03. Rev. Proc. 96–25, 1996–1 C.B.
681, for information on determining
inclusion amounts for automobiles first
leased before January 1, 1997; Rev. Proc.
97–20, 1997–1 C.B. 647, for automobiles
first leased during calendar year 1997,
including electric automobiles first leased
on or after January 1, 1997, and before
August 6, 1997; Rev. Proc. 98–24,
1998–1 C.B. 663, for electric automobiles
first leased after August 5, 1997, and
before January 1, 1998; Rev. Proc. 98–30,
1998–1 C.B. 930, for all automobiles first
leased in calendar year 1998; Rev. Proc.
99–14, 1999–1 C.B. 413, for all automo-
biles first leased in calendar year 1999;
and Rev. Proc. 2000–18, 2000–9 I.R.B.
722, for all automobiles first leased in cal-
endar year 2000.
04. The maximum fair market value
figure in section 4.04(2) of this revenue
procedure applies to employer-provided
automobiles first made available to any
employee for personal use in calendar
year 2001. SeeRev. Proc. 97–20, for the
maximum fair market value figure for
automobiles first made available in calen-
dar year 1997; Rev. Proc. 98–30, for the
maximum fair market value figure for
automobiles first made available in calen-
dar year 1998; Rev. Proc. 99–14, for the
maximum fair market value figure for
automobiles first made available in calen-
dar year 1999; and Rev. Proc. 2000–18,
for the maximum fair market value figure
for automobiles first made available in
calendar year 2000.
SECTION 4. APPLICATION
01. A taxpayer placing an automobile in
service for the first time during calendar
year 2001 is limited to the depreciation
deduction shown in Table 1 of section
4.02(2) of this revenue procedure or, in the
case of an electric automobile, Table 2 of
this revenue procedure. A taxpayer first
leasing an automobile in calendar year
2001 must determine the inclusion amount
that is added to gross income using Table 3
of section 4.03 of this revenue procedure or,
in the case of an electric automobile, Table
4 of this revenue procedure. In addition, the
procedures of § 1.280F–7(a) must be fol-
lowed. An employer providing an automo-
bile for the first time in calendar year 2001
for the personal use of any employee may
determine the value of the use of the auto-
mobile by using the cents-per-mile valua-
tion rule in § 1.61–21(e) if the fair market
value of the automobile does not exceed the
amount specified in section 4.04(2) of this
revenue procedure. If the fair market value
of the automobile exceeds the amount spec-
ified in section 4.04(2) of this revenue pro-
cedure, the employer may determine the
value of the use of the automobile under the
general valuation rules of § 1.61–21(b) or
under the special valuation rules of
§ 1.61–21(d) (Automobile lease valuation)
or § 1.61–21(f) (Commuting valuation) if
the applicable requirements are met.
02. Limitations on Depreciation
Deductions for Certain Automobiles.
(1) Amount of the Inflation Adjust-
ment. Under § 280F(d)(7)(B)(i), the auto-
mobile price inflation adjustment for any
calendar year is the percentage (if any) by
which the CPI automobile component for
October of the preceding calendar year
exceeds the CPI automobile component
for October 1987. The term “CPI auto-
mobile component” is defined in §
280F(d)(7)(B)(ii) as the “automobile
component” of the Consumer Price Index
for all Urban Consumers published by the
Department of Labor (the CPI). The new
car component of the CPI was 115.2 for
October 1987 and 138.6 for October
2000. The October 2000 index exceeded
the October 1987 index by 23.4. The
Internal Revenue Service has, therefore,
determined that the automobile price
inflation adjustment for 2001 is 20.31 per-
cent (23.4/115.2 x 100%). This adjust-
ment is applicable to all automobiles that
are first placed in service in calendar year
2001. The dollar limitations in § 280F(a)
must therefore be multiplied by a factor of
0.2031, and the resulting increases, after
rounding to the nearest $100, are added to
the 1988 limitations to give the deprecia-
tion limitations applicable to passenger
automobiles (other than electric automo-
biles) for calendar year 2001. To deter-
mine the dollar limitations applicable to
an electric automobile first placed in ser-
vice during calendar year 2001, the dollar
limitations in § 280F(a) are tripled in
accordance with § 280F(a)(1)(C) and are
then multiplied by a factor of 0.2031; the
resulting increases, after rounding to the
nearest $100, are added to the tripled 1988
limitations to give the depreciation limita-
tions for calendar year 2001.
(2) Amount of the Limitation. For
automobiles (other than electric automo-
biles) placed in service in calendar year
2001, Table 1 of this revenue procedure
contains the dollar amount of the depreci-
ation limitations for each tax year. For
electric automobiles placed in service in
calendar year 2001, Table 2 of this rev-
enue procedure contains these amounts.

February 26, 20017342001–9 I.R.B.
03. Inclusions in Income of Lessees of
Automobiles.
The inclusion amounts for automobiles
first leased in calendar year 2001 are cal-
culated under the procedures described in
§ 1.280F–7(a). Lessees of automobiles
other than electric automobiles should use
Table 3 of this revenue procedure in
applying these procedures, while lessees
of electric automobiles should use Table 4
of this revenue procedure.
REV. PROC. 2001–19 TABLE 1
DEPRECIATION LIMITATIONS FOR AUTOMOBILES
(OTHER THAN ELECTRIC AUTOMOBILES)
FIRST PLACED IN SERVICE IN CALENDAR YEAR 2001
Tax YearAmount
1st Tax Year$3,060
2nd Tax Year $4,900
3rd Tax Year $2,950
Each Succeeding Year$1,775
REV. PROC. 2001–19 TABLE 2
DEPRECIATION LIMITATIONS FOR ELECTRIC AUTOMOBILES
FIRST PLACED IN SERVICE IN CALENDAR YEAR 2001
Tax YearAmount
1st Tax Year$9,280
2nd Tax Year $14,800
3rd Tax Year $8,850
Each Succeeding Year$5,325
REV. PROC. 2001–19 TABLE 3
DOLLAR AMOUNTS FOR AUTOMOBILES (OTHER THAN ELECTRIC AUTOMOBILES)
WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2001
Fair Market Value Tax Year During Lease
of Automobile
OverNot Over1st2nd3rd4th5th and Later
15,50015,8003691011
15,80016,100512162022
16,10016,400817243033
16,40016,7001022333944
16,70017,0001327414856
17,00017,5001635516170
17,50018,0002044647789
18,00018,50024537892107
18,50019,000286291109125
19,00019,5003271104125143
19,50020,0003680117141162
20,00020,5004089131156181
20,50021,0004597144173199
21,00021,50049106158188217
21,50022,00053115171204236
22,00023,00059129190229263
23,00024,00067147217260300
24,00025,00075165243292337
25,00026,00083183270324373

2001–9 I.R.B.735February 26, 2001
REV. PROC. 2001–19 TABLE 3—Continued
DOLLAR AMOUNTS FOR AUTOMOBILES (OTHER THAN ELECTRIC AUTOMOBILES)
WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2001
Fair Market Value Tax Year During Lease
of Automobile
OverNot Over1st2nd3rd4th5th and Later
26,00027,00091201296356410
27,00028,000100218324387447
28,00029,000108236350419484
29,00030,000116254377451520
30,00031,000124272403483557
31,00032,000132290430515594
32,00033,000140308456547631
33,00034,000149326482579667
34,00035,000157343510610705
35,00036,000165361536643741
36,00037,000173379563674778
37,00038,000181397590705815
38,00039,000189415616738851
39,00040,000198433642770888
40,00041,000206451669801925
41,00042,000214469695833962
42,00043,000222487722865998
43,00044,0002305057488971,036
44,00045,0002385237759291,072
45,00046,0002475408029611,108
46,00047,0002555588289931,145
47,00048,0002635768551,0241,183
48,00049,0002715948811,0571,219
49,00050,0002796129081,0881,256
50,00051,0002876309351,1191,293
51,00052,0002966489611,1511,330
52,00053,0003046669871,1841,366
53,00054,0003126841,0141,2151,403
54,00055,0003207021,0401,2481,439
55,00056,0003287201,0671,2791,476
56,00057,0003367381,0931,3111,514
57,00058,0003457551,1201,3431,550
58,00059,0003537731,1471,3751,586
59,00060,0003617911,1731,4071,624
60,00062,0003738181,2131,4551,678
62,00064,0003908541,2661,5181,752
64,00066,0004068901,3191,5821,825
66,00068,0004229261,3721,6451,900
68,00070,0004399611,4261,7091,972
70,00072,0004559971,4791,7722,047
72,00074,0004711,0331,5321,8362,120
74,00076,0004881,0681,5851,9012,193
76,00078,0005041,1041,6381,9642,267
78,00080,0005201,1401,6922,0272,341
80,00085,0005491,2031,7842,1392,469
85,00090,0005901,2921,9172,2982,653
90,00095,0006311,3822,0492,4582,837
95,000 100,0006711,4722,1822,6173,020
100,000 110,0007331,6052,3822,8563,296

110,000 120,00081417852,6473,1743,664
120,000 130,0008961,9642,9133,4924,032
130,000 140,0009782,1423,1793,8114,399
140,000 150,0001,0592,3223,4444,1294,767
150,000 160,0001,1412,5013,7094,4485,135
160,000 170,0001,2232,6803,9754,7665,502
170,000 180,0001,3042,8594,2415,0845,871
180,000 190,0001,3863,0384,5065,4036,238
190,000 200,0001,4683,2174,7725,7216,606
200,000 210,0001,5493,3965,0386,0406,973
210,000 220,0001,6313,5755,3036,3587,341
220,000 230,0001,7133,7545,5686,6777,709
230,000 240,0001,7943,9335,8346,9968,076
240,000 250,0001,8764,1126,1007,3148,443
February 26, 20017362001–9 I.R.B.
REV. PROC. 2001–19 TABLE 3—Continued
DOLLAR AMOUNTS FOR AUTOMOBILES (OTHER THAN ELECTRIC AUTOMOBILES)
WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2001
Fair Market Value Tax Year During Lease
of Automobile
OverNot Over1st2nd3rd4th5th and Later
REV. PROC. 2001–19 TABLE 4
DOLLAR AMOUNTS FOR ELECTRIC AUTOMOBILES
WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2001
Fair Market Value Tax Year During Lease
of Automobile
OverNot Over1st2nd3rd4th5th and Later
$ 47,000 48,000 9 21 33 40 46
48,000 49,000 17 39 60 71 83
49,000 50,000 25 57 86 104 119
50,000 51,000 33 75 113 135 157
51,000 52,000 42 93 139 167 193
52,000 53,000 50 111 165 199 230
53,000 54,000 58 129 192 231 266
54,000 55,000 66 147 218 263 304
55,000 56,000 74 165 245 295 340
56,000 57,000 82 183 272 326 377
57,000 58,000 91 200 299 358 414
58,000 59,000 99 218 325 390 451
59,000 60,000 107 236 352 422 487
60,000 62,000 119 263 391 470 543
62,000 64,000 136 298 445 533 616
64,000 66,000 152 334 498 597 690
66,000 68,000 168 370 551 661 763
68,000 70,000 185 406 604 724 837
70,000 72,000 201 442 657 788 910
72,000 74,000 217 478 710 852 984
74,000 76,000 234 513 764 915 1057
76,000 78,000 250 549 817 979 1131
78,000 80,000 266 585 870 1,043 1,204

2001–9 I.R.B.737February 26, 2001
04. Maximum Automobile Value for
Using the Cents-per-mile Valuation Rule.
(1) Amount of Adjustment. Under
§ 1.61–21(e)(1)(iii)(A), the limitation on
the fair market value of an employer-pro-
vided automobile first made available to
any employee for personal use after 1988 is
to be adjusted in accordance with
§ 280F(d)(7). Accordingly, the adjustment
for any calendar year is the percentage (if
any) by which the CPI automobile compo-
nent for October of the preceding calendar
year exceeds the CPI automobile compo-
nent for October 1987. See, section 4.02(1)
of this revenue procedure. The new car
component of the CPI was 115.2 for
October 1987 and 138.6 for October 2000.
The October 2000 index exceeded the
October 1987 index by 23.4. The Internal
Revenue Service has, therefore, determined
that the adjustment for 2001 is 20.31 per-
cent (23.4/115.2 x 100%). This adjustment
is applicable to all employer-provided auto-
mobiles first made available to any employ-
ee for personal use in calendar year 2001.
The maximum fair market value specified
in § 1.61–21(e)(1)(iii)(A) must therefore be
multiplied by a factor of 0.2031, and the
resulting increase, after rounding to the
nearest $100, is added to $12,800 to give
the maximum value for calendar year 2001.
(2) The Maximum Automobile Value.
For automobiles first made available in
calendar year 2001 to any employee of the
employer for personal use, the vehicle
cents-per-mile valuation rule may be
applicable if the fair market value of the
automobile on the date it is first made
available does not exceed $15,400.
SECTION 5. EFFECTIVE DATE
This revenue procedure applies to auto-
mobiles (other than leased automobiles)
that are first placed in service during cal-
endar year 2001, to leased automobiles
that are first leased during calendar year
2001, and to employer-provided automo-
biles first made available to employees for
personal use in calendar year 2001.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Bernard P. Harvey of the
Office of the Associate Chief Counsel
(Passthroughs and Special Industries).
For further information regarding the
depreciation limitations and lessee inclu-
sion amounts in this revenue procedure,
contact Mr. Harvey at (202) 622-3110; for
further information regarding the maxi-
mum automobile value for applying the
vehicle cents-per-mile valuation rule, con-
tact Ms. Lynne Camillo of the Office of
the Associate Chief Counsel (Tax Exempt
and Government Entities) at (202) 622-
6040 (not toll-free calls).
REV. PROC. 2001–19 TABLE 4—Continued
DOLLAR AMOUNTS FOR ELECTRIC AUTOMOBILES
WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2001
Fair Market Value Tax Year During Lease
of Automobile
OverNot Over1st2nd3rd4th5th and Later
80,000 85,000 295 648 962 1,155 1,332
85,000 90,000 336 737 1,095 1,314 1,517
90,000 95,000 377 826 1,229 1,472 1,701
95,000 100,000 417 916 1,361 1,632 1,885
100,000 110,000 479 1,050 1,560 1,871 2,161
110,000 120,000 560 1,230 1,825 2,190 2,528
120,000 130,000 642 1,408 2,092 2,508 2,895
130,000 140,000 724 1,587 2,357 2,826 3,264
140,000 150,000 805 1,767 2,622 3,145 3,631
150,000 160,000 887 1,946 2,888 3,463 3,998
160,000 170,000 969 2,124 3,154 3,782 4,366
170,000 180,000 1,050 2,304 3,419 4,100 4,374
180,000 190,000 1,132 2,483 3,684 4,419 5,102
190,000 200,000 1,214 2,661 3,951 4,737 5,469
200,000 210,000 1,295 2,841 4,216 5,055 5,837
210,000 220,000 1,377 3,020 4,481 5,374 6,205
220,000 230,000 1,459 3,199 4,747 5,692 6,572
230,000 240,000 1,540 3,378 5,013 6,010 6,940
240,000 250,000 1,622 3,557 5,278 6,329 7,308

February 26, 20017382001–9 I.R.B.
Voluntary Compliance on Alien Withholding Program
Rev. Proc. 2001–20
Offer to resolve issues arising from certain tax, withholding, and reporting obligations of public and other not-for-profit colleges
and universities with respect to payments to alien individuals.
TABLE OF CONTENTS
SECTION 1. GENERAL
.01 Background.
.02 Applicable law.
.03 Definitions.
.04 Summary of VCAP.
.05 No waiver of excise tax, FICA, or other tax obligations.
.06 Request for comments.
SEC. 2. ELIGIBLE ORGANIZATIONS
.01 Eligible Organizations.
.02 Organizations currently under examination.
SEC. 3. TAX AND WITHHOLDING OBLIGATIONS SUBJECT TO VCAP
SEC. 4. SUBMISSION PROCEDURES
.01 In general.
.02 Required information.
.03 Required documents.
.04 Signatures.
.05 Power of Attorney requirements.
.06 Penalty of perjury statement.
.07 Marked letter.
.08 Mailing address.
SEC. 5. PROCESSING OF VCAP REQUESTS
.01 Inadequate or incomplete submission or request for additional information.
.02 Determining tax liability.
.03 Review of Eligible Organization’s compliance procedures.
.04 Other tax liabilities or issues.
.05 Verification.
.06 Acknowledgment letter.
.07 Failure to reach resolution.
.08 Applicability of §§ 6103 and 6110.
.09 Conferences.
SEC. 6. EFFECTIVE DATE AND SUNSET DATE
SEC. 7. PAPERWORK REDUCTION ACT
SEC. 8. DRAFTING INFORMATION
SECTION 1. GENERAL
.01 Background. This revenue proce-
dure describes the Voluntary Compliance
on Alien Withholding Program
(“VCAP”), which is available to certain
public and other not-for-profit colleges
and universities, and their charitable affil-
iates, with respect to the payment, with-
holding, and reporting of certain taxes due
on payments made to alien individuals.
The Internal Revenue Service
(“Service”) will begin VCAP as a tempo-
rary and experimental program. See sec-
tion 6 of this revenue procedure for the
effective date and sunset date of VCAP.
See section 2 of this revenue procedure
for the organizations that are eligible to
participate in VCAP (eligible organiza-
tions). See section 3 of this revenue pro-
cedure for the taxes, including excise

taxes, and the withholding and reporting
obligations covered by VCAP.
.02 Applicable law. The objective of
VCAP is to enhance voluntary compli-
ance among public and other not-for-prof-
it colleges and universities, and their affil-
iated charitable organizations, making
payments of wages, grants, scholarships,
and other income to alien individuals.
Generally, income received by a nonresi-
dent alien individual from sources within
the United States is subject to tax under
§ 871(a) of the Internal Revenue Code
(“Code”) unless an exception applies.
The tax is imposed, generally on the gross
amount of income, at a 30-percent rate if
the income is not effectively connected
with the conduct of a trade or business in
the United States or at a 14-percent rate in
the case of income from certain scholar-
ships, fellowships and grants. Section
1441 of the Code requires any person who
pays income subject to tax under § 871(a)
of the Code to a nonresident alien individ-
ual to deduct and withhold the 30% (or
14%) tax from the gross amount paid.
The rate of tax, and therefore withholding,
may be reduced or eliminated under an
income tax treaty. A withholding agent
may rely on a claim of treaty benefit if the
nonresident alien individual has furnished
appropriate documentation. See § 1.1441
–6 of the Income Tax Regulations. See
also IRS Publication 515, Withholding of
Tax on Nonresident Aliens and Foreign
Corporations, and IRS Publication 901,
U.S. Tax Treaties.
Section 871(b) of the Code imposes a
graduated rate of tax on a nonresident
alien individual’s income that is effective-
ly connected with the individual’s conduct
of a trade or business in the United States.
This provision is relevant to income
earned for personal services because,
under § 864(b) of the Code, the perfor-
mance of personal services in the United
States is considered to be the conduct of a
trade or business within the United States.
Further, under § 871(c) of the Code, a
nonresident alien individual with a speci-
fied nonimmigrant status who is a partici-
pant in certain exchange or training pro-
grams is treated as being engaged in a
trade or business within the United States
(regardless of whether he is actually so
engaged) with regard to income derived in
connection with that exchange or training
program. A nonresident alien individual’s
effectively connected services income
may also be subject to withholding under
§ 1441 of the Code (or § 3402 of the Code
for most income constituting wages).
With respect to reporting obligations, a
nonresident alien individual’s effectively
connected personal services income con-
stituting wages under § 3402 of the Code
is subject to wage reporting under chapter
61 of the Code (i.e., on Form 941 and
Form W-2), and such individual’s non-
wage income is subject to reporting under
§ 1.1461–1(c)(2) of the Income Tax
Regulations (i.e., on Form 1042 and Form
1042–S). Additionally, taxes may be
imposed on wages paid to alien individu-
als under §§ 3101 and 3111 of the Code
(social security and Medicare taxes).
.03 Definitions. For purposes of this
revenue procedure, the following defini-
tions apply:
(1) The term “alien individual” means an
individual who is not a citizen or a national
of the United States. See § 1.1–1(c) of the
Income Tax Regulations.
(2) The term “resident alien” means an
alien individual described in § 7701(b)(1)(A)
of the Code.
(3) The term “nonresident alien”
means an alien individual described in
§ 7701(b)(1)(B) of the Code.
.04 Summary of VCAP. Organizations
that request consideration under VCAP
agree to (1) identify those areas in which
they are not in compliance with tax, with-
holding, and reporting obligations on pay-
ments to alien individuals; (2) compute
and pay any tax due; and (3) institute pro-
cedures and policies which will assure
compliance in the future with the organi-
zation’s tax, withholding, and reporting
obligations. Organizations will receive
assurance that their proposed procedures
and policies relating to tax, withholding,
and reporting obligations applicable to
alien individuals are acceptable to the
Service, and the Service generally will not
impose penalties for identified underpay-
ments or deficiencies, if the liability is due
to reasonable cause. See sections 5.02(3)
and 5.06 of this revenue procedure.
.05 No waiver of excise tax, FICA, or
other tax obligations. VCAP does not
waive or reduce any applicable tax and
does not alter an employer’s obligations
to satisfy any applicable Federal
Insurance Contributions Act (FICA) or
Federal income tax withholding require-
ments with regard to any employee.
(However, see §§ 3121(b)(10) and
3121(b)(19) of the Code for certain tax-
exempt wages.) In addition, VCAP does
not affect any other obligations of the tax-
payer or the Service that are not within the
scope of this revenue procedure or the
acknowledgment described in section
5.06 of this revenue procedure.
.06 Request for comments. Because
of the experimental nature of VCAP,
the Service welcomes comments on the
format and operation of this program,
including suggestions regarding
whether the program should be expand-
ed to cover other organizations, such as
proprietary colleges and universities
and other educational organizations,
not listed in section 2 of this revenue
procedure, or other types of defects not
listed in section 3 of this revenue pro-
cedure. The Service also welcomes
suggestions regarding possible stan-
dardized correction methods for speci-
fied defects that could be appropriately
addressed under VCAP. Any modifica-
tions will be made only by announce-
ments, revenue procedures, notices or
other guidance published in the Internal
Revenue Bulletin. Comments on
VCAP should be mailed to:
Internal Revenue Service
Attention: T:EO:RA:T:G (VCAP)
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
Comments may also be sent electroni-
cally via the Internet to *TE/GE-EO-
3@irs.gov.
SEC. 2. ELIGIBLE ORGANIZATIONS
.01 Eligible Organizations. Except as
provided in section 2.02, an organization
is eligible for VCAP (an “eligible organi-
zation”) if it is:
(1) A college or university described in
§ 170(b)(1)(A)(ii) of the Code that is:
(a) Exempt from tax under § 501(a) of
the Code as an organization described in
§ 501(c)(3); or
(b) An agency or instrumentality of any
government or any political subdivision
thereof, or that is owned or operated by a
government or any political subdivision
thereof, or by an agency or instrumentali-
ty of one or more governments or political
subdivisions (a “State college or universi-
ty”); or
2001–9 I.R.B.739February 26, 2001

(2) An organization described in
§ 501(c)(3) of the Code and exempt from
income tax under § 501(a) that is affiliat-
ed with such a college or university.
An eligible organization may apply for
VCAP with respect to any payments made
to alien individuals.
.02 Organizations currently under
examination. An organization is not eli-
gible for VCAP if the organization is
under examination on the date of the pub-
lication of this revenue procedure, or
comes under examination prior to submit-
ting the information required by section 4
of this revenue procedure. For this pur-
pose, an examination is treated as com-
mencing on the date the organization
received notification from the Service of
an impending examination or of an
impending referral for examination. This
program is also not available to any orga-
nization that has a case pending in
Appeals or in litigation on issues involv-
ing taxes or withholding obligations
described in section 3 of this revenue pro-
cedure.
SEC. 3. TAX, WITHHOLDING, AND
REPORTING OBLIGATIONS
SUBJECT TO VCAP
The defects for which an eligible orga-
nization may make a submission under
VCAP are:
(1) Failure to pay the correct amount of
social security and Medicare excise taxes
imposed on employers with respect to
wages paid to alien individuals (§ 3111(a)
and § 3111(b) of the Code);
(2) Failure to withhold or pay the cor-
rect amount of social security and
Medicare taxes imposed on employees
with respect to wages paid to alien indi-
viduals (§ 3101(a) and § 3101(b) of the
Code);
(3) Failure to withhold or pay the cor-
rect amount of income taxes on wages
paid to alien individuals (§ 3402 of the
Code);
(4) Failure to withhold or pay the cor-
rect amount of income taxes on scholar-
ships, fellowships and grants paid to non-
resident alien individuals (§§ 1441—1464
of the Code);
(5) Failure to withhold or pay the cor-
rect amount of taxes on compensation for
independent personal services paid to
nonresident alien individuals (§§ 1441—
1464 of the Code);
(6) Failure to withhold or pay the cor-
rect amount of taxes on royalties or other
types of taxable income paid to nonresi-
dent alien individuals (§§ 1441–1464 of
the Code); and
(7) Failure to report the correct amount
of any or all of the taxes listed above
(§§ 1441–1464 and 6011 of the Code).
SEC. 4. SUBMISSION PROCEDURES
.01 In general. In general, an eligible
organization submits a request under
VCAP through a letter to the Tax
Exempt/Government Entities (TE/GE)
office at the address in section 4.08 of this
revenue procedure. The submission must
contain the information and documenta-
tion described in sections 4.02 and 4.03 of
this revenue procedure. The Service will
not accept anonymous submissions under
VCAP.
.02 Required information. The request
for consideration under VCAP must con-
tain the following information:
(1) The name, address, and taxpayer
identification number of the eligible orga-
nization.
(2) A description of the current admin-
istrative procedures that the eligible orga-
nization uses to determine tax, withhold-
ing, and reporting obligations regarding
payments to alien individuals.
(3) A description of the defects in the
eligible organization’s tax, withholding,
and reporting procedures for payments to
alien individuals, how and why the
defects occurred, and the years affected
by such defects.
(4) The number of alien individuals
affected and how the number was deter-
mined.
(5) The number of any affiliated chari-
table organizations affected by the
defects, their names, addresses, and tax-
payer identification numbers.
(6) A calculation of the total amount of
taxes the eligible organization failed to
withhold, pay and/or report, not including
interest and penalties, for tax periods open
for assessment or collection under the
provisions of § 6501 of the Code. This
calculation should take into account prop-
erly substantiated adjustments under
§§ 1463 and 3402(d) of the Code. The
eligible organization must agree to pay
and remit all of its additional tax due and
owing plus interest at the completion of
the Service’s review or examination. See
section 5 of this revenue procedure.
(However, regarding the non-assertion of
interest, see section 5.02(2) of this rev-
enue procedure.) In certain cases involv-
ing large liabilities or underpayments, the
Service will consider the organization’s
proposal for payment of the liability or
underpayment in more than one install-
ment, or will consider the organization’s
posting of a cash bond under the proce-
dures outlined in Rev. Proc. 84–58,
1984–2 C.B. 501. See section 5.02(4) of
this revenue procedure.
(7) A detailed description of the meth-
ods for correcting the defects that the
organization has implemented or proposes
to implement. Those methods must
ensure that the correct amount of taxes
and withholding of taxes on payments to
alien individuals will be withheld, paid
over, and reported to the Service on the
proper forms and in a timely manner.
(8) A statement signed by the eligible
organization’s officer or authorized repre-
sentative acknowledging and agreeing that
the eligible organization’s participation in
VCAP will not constitute an employment
tax audit of the eligible organization and
will not provide a reasonable basis for not
treating an individual as an employee
under § 530 of the Revenue Act of 1978.
.03 Required documents. The submis-
sion must be accompanied by the follow-
ing documentation:
(1) In the case of a college or universi-
ty, a copy of the organization’s determina-
tion letter indicating that it is an organiza-
tion described in §§ 170(b)(1)(A)(ii) and
501(c)(3) of the Code, or sufficient docu-
mentation indicating that the organization
is a State college or university. In the case
of an affiliated charitable organization,
the organization must provide both a copy
of its determination letter indicating that it
is an organization described in § 501(c)(3)
of the Code and sufficient documentation
indicating its relationship to a college or
university that is itself an eligible organi-
zation.
(2) Copies of workpapers or schedules
that clearly explain the eligible organiza-
tion’s calculation of its correct tax liabili-
ty regarding payments to alien individuals
(see section 4.02(6) of this revenue proce-
dure). The workpapers or schedules
should also show to which specific tax
returns and tax periods the liability
relates.
February 26, 20017402001–9 I.R.B.

(3) Copies of the original Forms 941,
945, 1042, if any, as filed that relate to the
above calculations.
(4) Copies of Forms 8233, 1001,
W-8BEN, W-9, or sufficient information
to support tax treaty claims.
(5) In cases involving the failure to pay
the correct amount of social security and
Medicare excise taxes imposed on
employers with to respect wages paid to
alien individuals (§ 3111(a) and § 3111(b)
of the Code), and the failure to withhold
or pay the correct amount of social securi-
ty and Medicare taxes imposed on
employees with respect to wages paid to
alien individuals (§ 3101(a) and § 3101(b)
of the Code), a description of how Forms
W-2C will be prepared and provided to
affected employees and the Social
Security Administration.
.04 Signatures. The submission must
be signed by an officer of the eligible
organization who is authorized to sign or
the eligible organization’s authorized rep-
resentative.
.05 Power of Attorney requirements.
To sign the submission or to appear before
the Service in connection with the sub-
mission, a representative must comply
with the requirements of section 9 of Rev.
Proc. 2001–4, 2000–1 I.R.B. 135.
.06 Penalty of perjury statement. The
following declaration must accompany a
VCAP submission and any factual infor-
mation submitted after the original sub-
mission or any change in the submission
at a later time: “Under penalties of per-
jury, I declare that I have examined this
submission, including accompanying
documents, and to the best of my
knowledge and belief, the facts present-
ed in support of the VCAP request are
true, correct, and complete.”The decla-
ration must be signed by the eligible orga-
nization’s officer, not the organization’s
representative.
.07 Marked letter and marked enve-
lope. The letter which transmits the sub-
mission to the Service must be marked
“VCAP” in the upper right-hand corner of
the letter, and the envelope containing the
submission must be marked “VCAP” in
the lower left-hand corner of the enve-
lope.
.08 Mailing address. The submission
must be mailed to the address shown
below. The Service may issue an
announcement later which contains other
addresses for the mailing of VCAP sub-
missions.
Internal Revenue Service
Roger Greening
Manager EPP
1100 Commerce Street
MC: 4910DAL
Dallas, TX 75242
SEC. 5. PROCESSING OF VCAP
REQUESTS
.01 Inadequate or incomplete submis-
sion or request for additional information.
If the submission fails to comply with the
provisions of this revenue procedure or
the Service requires additional informa-
tion, the Service representative assigned
to the case will contact the eligible orga-
nization or its representative and explain
what is needed to complete the submis-
sion. The organization will have 90 busi-
ness days from the date of this contact to
provide the requested information. Any
request for an extension of the 90-day
time period must be made prior to expira-
tion of the period, and must be approved
by the TE/GE Area Manager of the appro-
priate TE/GE Area Office, or his or her
designated representative. If the request-
ed information is not received within 90
business days, or an agreement cannot be
reached on correction or administrative
procedures, the matter will be closed, and
the Service may consider the case for
examination.
.02 Determining tax liability. Once the
Service accepts the submission under
VCAP, the Service will analyze the eligi-
ble organization’s calculation of its tax
liability regarding payments to alien indi-
viduals, and will analyze the accompany-
ing workpapers, schedules, and returns
which support such calculation. The
Service will generally apply the following
approach to determine the tax liability of
an eligible organization:
(1) The Service will normally allow tax
treaty benefits in the computation of any
adjustments to taxes and withholding of
taxes on payments to nonresident alien
individuals, even in the absence of Forms
8233, 1001, W-9, or W-8BEN if the eligi-
ble organization has acted in good faith
and provides sufficient information to
support the treaty claims.
(2) Interest on the eligible organiza-
tion’s underpayments will be due from the
last date prescribed for payment of the
taxes (determined without regard to
VCAP or any extension of time for pay-
ment) to the date on which payment is
received; provided, however, that interest-
free adjustments of underpayments of cer-
tain employment taxes may be made in
accordance with § 6205(a)(1) of the Code,
Proposed Treas. Reg. § 31.6205–1(b) and
(c), and Rev. Rul. 75–464, 1975–2 C.B.
474.
(3) The Service will not assert any
penalties on the eligible organization’s
liability, if the organization’s failure to
withhold, pay, and report taxes as
described in section 1 of this revenue pro-
cedure, is due to reasonable cause.
(4) In certain cases involving large lia-
bilities, the Service will consider the eligi-
ble organization’s proposal for payment
of the liability in more than one install-
ment. See Internal Revenue Manual
(IRM) Handbook 4.3.2, Examination
Collectibility Handbook, Chapter 4,
Installment Agreements (05–25–2000).
Applicants may also wish to avail them-
selves of the procedures for making a
deposit in the nature of a cash bond as
contained in Rev. Proc. 84–58, 1984–2
C.B. 501.
.03 Review of Eligible Organization’s
compliance procedures. The eligible
organization must demonstrate to the sat-
isfaction of the Service that it has imple-
mented (or it has plans for implementing)
policies and procedures that ensure that
the correct amount of taxes and withhold-
ing of taxes on payments to alien individ-
uals are reported and paid over to the
Service on the proper forms and in a time-
ly manner. The Service will review the
eligible organization’s policies and proce-
dures to assure itself that the policies and
procedures are reasonably likely to bring
the organization into compliance on a
prospective basis. The Service reserves
the right to prescribe appropriate adminis-
trative procedures, but will first discuss
the appropriateness of existing procedures
with the organization. Where the current
procedures, or proposed future proce-
dures, are inadequate for complying with
the relevant tax, withholding, and report-
ing requirements, the Service also
reserves the right to deny relief under
VCAP.
.04 Other tax liabilities or issues. If
the Service discovers an unrelated tax lia-
2001–9 I.R.B.741February 26, 2001

bility or exemption issue while consider-
ing the request, that issue will remain out-
side the scope of the VCAP submission
because it was not voluntarily brought
forward by the organization.
.05 Verification. As part of the pro-
cessing of the VCAP submission, the
Service reserves the right to verify that
corrections have been made to the eligible
organization’s tax, withholding, and
reporting procedures on payments to alien
individuals. Verification of such correc-
tions does not constitute an examination
of the books and records of the organiza-
tion. If the Service determines that the
eligible organization has not implemented
or does not plan to implement the proper
corrections and procedures, the case may
be considered for examination. The
Service does not contemplate opening
examinations on VCAP submissions but
reserves the right to do so. If the Service
decides to examine the eligible organiza-
tion, the examination will be commenced
and completed as soon as possible, with
the intention in most cases that the scope
of the examination will be limited to tax
and withholding obligations on payments
to alien individuals and related issues.
.06 Acknowledgment letter. If the
Service is satisfied at the conclusion of its
review that the organization has instituted
policies and procedures which ensure that
the correct amounts of taxes on payments
to alien individuals are withheld, paid,
and reported to the Service on the proper
forms and in a timely manner, then the
Service will issue to the eligible organiza-
tion an acknowledgment letter indicating
that based upon its review, the eligible
organization is at that time in substantial
compliance with the tax, withholding, and
reporting obligations governing payments
to alien individuals. Once the organiza-
tion has received an acknowledgment let-
ter at the completion of the VCAP
process, and provided that the organiza-
tion in fact complies with the agreed upon
withholding, payment and reporting pro-
cedures, the information submitted by the
organization to the Service under VCAP
will not be used as the basis to initiate an
examination of the organization.
.07 Failure to reach resolution. If res-
olution cannot be reached because suffi-
cient information is not timely provided to
the Service or because agreement cannot
be reached on correction or administrative
procedures, the Service may consider the
case for examination.
.08 Applicability of §§ 6103 and 6110.
The information received or generated by
the Service under VCAP is subject to the
confidentiality requirements of § 6103 of
the Code. The acknowledgment letter is
not a written determination letter within
the meaning of § 6110 of the Code.
.09 Conferences. If the Service initial-
ly determines that it cannot issue an
acknowledgment letter because the parties
cannot agree upon some correction or
administrative issue, the organization or
the organization’s representative may be
granted a conference with the Service, at
the Service’s discretion and upon request
by the organization or the organization’s
representative. The conference can be
held either in person or by telephone. If a
conference is offered, the organization or
its representative will be contacted by the
Service representative.
SEC. 6. EFFECTIVE DATE AND
SUNSET DATE
VCAP is effective on February 26,
2001. It will be available for submissions
made on or before February 28, 2002.
SEC. 7. PAPERWORK REDUCTION
ACT
The collections of information contained
in this revenue procedure have been
reviewed and approved by the Office of
Management and Budget in accordance with
the Paperwork Reduction Act (44 U.S.C. §
3507) under control number 1545–1735.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
control number.
The collections of information con-
tained in this revenue procedure are in
section 4.02 and section 4.03(2). This
information will enable the Service to
determine whether an organization quali-
fies for VCAP. The likely respondents are
public and other not-for-profit colleges
and universities and certain other charita-
ble organizations.
The estimated total annual reporting
burden is 346,500 hours.
The estimated average annual burden
per respondent is 700 hours. The estimat-
ed number of respondents is 495.
The estimated annual frequency of
responses is on occasion.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. § 6103.
SEC. 8. DRAFTING INFORMATION
The principal authors of this revenue
procedure are Lowell G. Hancock of the
Office of Pre-Filing Services, and
Virginia Richardson of the Tax
Exempt/Government Entities Division.
For more information concerning VCAP,
contact Mr. Hancock at (202) 874-1800 or
(330) 375-5421 (not toll-free numbers),
Ms. Richardson at (202) 283-8938 (not a
toll-free number), or Neil Shepherd of the
Office of the Associate Chief Counsel
(Tax Exempt and Government Entities) at
(202) 622-6040 (not a toll-free number).
26 CFR 601.601: Rules and regulations.
(Also Part I, §§ 1001; 1.1001–3, 1.1275–2.)
Rev. Proc. 2001–21
SECTION 1. PURPOSE
This revenue procedure provides an
election that will facilitate the substitu-
tion of newly issued debt instruments
for outstanding debt instruments.
Under the election, taxpayers can treat
a substitution of debt instruments, in
certain circumstances, as a realization
event for federal income tax purposes
even though it does not result in a sig-
nificant modification under § 1.1001–3
of the Income Tax Regulations (and,
therefore, is not otherwise an exchange
for purposes of § 1.1001–1(a)). Under
section 4 of this revenue procedure,
taxpayers do not recognize any realized
gain or loss on the date of the substitu-
tion. Instead, the gain or loss generally
is taken into account as income or
deductions over the term of the new
debt instruments.
This revenue procedure modifies and
supersedes Rev. Proc. 99–18, 1999–1
C.B. 736, which, as modified by Rev.
Proc. 2000–29, 2000–28 I.R.B. 113,
applies to substitutions that occur on or
February 26, 20017422001–9 I.R.B.

after March 1, 1999. The significant
changes to Rev. Proc. 99–18 are as fol-
lows:
.01 The newly issued debt may be debt
issued in a qualified reopening;
.02 The outstanding debt may have
been issued with premium; and
.03 The determination of whether a
substitution does or does not result in a
significant modification may be made on
the substitution date or, in most cases, on
the date that is two business days before
the date on which the substitution offer
commences.
SECTION 2. BACKGROUND
.01 Under § 1.1001–1(a), if gain or loss
is realized from the exchange of property
for other property differing materially
either in kind or in extent, it is treated as
income or as loss sustained.
.02 Section 1.1001–3 provides rules to
determine whether a modification of the
terms of a debt instrument results in an
exchange of the original debt instrument
for a modified instrument that differs
materially either in kind or in extent.
Under § 1.1001–3(b), a modification of a
debt instrument results in an exchange for
purposes of § 1.1001–1(a) if, and only if,
the modification is significant.
.03 Section 1.1001–3 applies to any
modification of a debt instrument, regard-
less of the form of the modification
(including an exchange of a new instru-
ment for an existing instrument). Under
§ 1.1001–3(c), a modification means any
alteration, including any deletion or addi-
tion, in whole or in part, of a legal right or
obligation of the issuer or a holder of a
debt instrument, whether the alteration is
evidenced by an express agreement (oral
or written), conduct of the parties, or oth-
erwise.
.04 In general, a modification of a debt
instrument is a significant modification
under § 1.1001–3 only if, based on all the
facts and circumstances, the legal rights or
obligations that are altered and the degree
to which they are altered are economical-
ly significant. Section 1.1001–3(e) pro-
vides rules to determine whether certain
modifications, such as a change in the
yield or in the timing of payments, consti-
tute significant modifications.
.05 If the terms of a debt instrument are
modified to defer one or more payments
and the modification does not result in an
exchange under § 1.1001–3, § 1.1275–2(j)
provides rules to account for the modified
debt instrument. Under § 1.1275–2(j),
solely for purposes of §§ 1272 and 1273 of
the Internal Revenue Code, the debt instru-
ment is treated as retired and then reissued
on the date of the modification for an
amount equal to the instrument’s adjusted
issue price on that date. As a result, the debt
instrument is retested for original issue dis-
count based on the instrument’s adjusted
issue price and the remaining payments, as
modified, to be made on the instrument. If
the debt instrument has original issue dis-
count as a result of the modification, both
the issuer and the holder account for the
original issue discount over the remaining
term of the instrument. See§§ 163(e) and
1272.
.06 An issuer may want to refinance and
consolidate outstanding debt instruments
in a way that increases the liquidity of the
issuer’s debt by concentrating more of the
issuer’s outstanding debt in a smaller num-
ber of issues. In general, if the terms of the
newly issued debt are not materially dif-
ferent from the terms of the outstanding
debt, substituting the newly issued debt for
the outstanding debt does not result in a
significant modification of the outstanding
debt under § 1.1001–3. Therefore, the
substitution of the newly issued debt for
the outstanding debt in the refinancing and
consolidation is not a realization event for
federal income tax purposes. Under
§ 1.1275–2(j), however, some or all of the
newly issued debt may have original issue
discount in varying amounts, depending
upon the terms of the outstanding debt for
which the newly issued debt was substitut-
ed. As a result, the newly issued debt may
not be fungible.
SECTION 3. SCOPE
This revenue procedure applies to the
substitution of new debt for old debt if all
of the following conditions are satisfied:
.01 Either—
(1) Debt instruments from a single
new issue (“new debt”) are substituted for
debt instruments from two or more out-
standing issues of debt (“old debt”) (It is
not necessary, however, for any single
holder of the old debt to have held debt
instruments from more than one of the
outstanding issues.); or
(2) Debt instruments issued in a
qualified reopening (as defined in
§ 1.1275–2) (“new debt”) are substituted
for debt instruments from one or more
outstanding issues of debt (“old debt”).
.02 The substitution does not result in a
significant modification of the old debt
under § 1.1001–3 and, therefore, is not a
realization event under § 1.1001–1. This
determination may be made either on–
(1) the substitution date, or
(2) the date that is two business days
before the date on which the substitution
offer commences, provided that date is no
more than 30 business days before the
date on which the substitution offer ends.
.03 The new debt and the old debt are
publicly traded (within the meaning of
§ 1.1273–2(f)). If the new debt is issued
in a qualified reopening of an outstanding
issue of debt, that outstanding issue was
also publicly traded.
.04 The old debt was issued at par, at a
premium, or with less than a de minimis
amount of original issue discount (within
the meaning of § 1.1273–1(d)).
.05 The new debt is issued at par or
with less than a de minimisamount of
original issue discount or premium. For
purposes of this condition, the issue price
of the new debt is determined under
§ 1.1273–2 (rather than under § 1.1275–2
(j)), and the de minimisamount for premi-
um is determined using the principles of §
1.1273–1(d).
.06 Neither the new debt nor the old
debt is—
(1) a contingent payment debt instru-
ment (within the meaning of § 1.1275–4),
(2) a tax-exempt obligation (as
defined in § 1275(a)(3)), or
(3) a convertible debt instrument
(within the meaning of § 1.1272–1(e)).
.07 All payments on the old debt and
the new debt are denominated in, or deter-
mined solely by reference to, U.S. dollars,
and the functional currency of the busi-
ness unit issuing the new debt is the U.S.
dollar.
.08 The issuer and one or more holders
of the old debt make the election provided
in section 4.01 of this revenue procedure.
SECTION 4. APPLICATION
.01 Election.
(1) Manner of making the election.
The issuer and the holders make the elec-
tion under this revenue procedure by
agreeing in writing to treat the substitu-
tion for federal income tax purposes in the
2001–9 I.R.B.743February 26, 2001

manner described in section 4.02 through
section 4.04 of this revenue procedure and
to comply with all other provisions of this
revenue procedure. The written agree-
ment must be entered into no later than
the last day of the month in which the sub-
stitution occurs.
For example, the written agreement to
make the election may be evidenced by a
statement in the offering documents for
the substitution that—
(a) The issuer, by distributing the
documents, elects under this revenue pro-
cedure to treat the substitution as a real-
ization event for federal income tax pur-
poses;
(b) Any holder of old debt that ten-
ders its old debt for new debt as part of the
substitution thereby makes the election
under this revenue procedure; and
(c) The issuer and the holders who
have tendered their old debt for the new
debt (“electing holders”) will comply with
the provisions of this revenue procedure.
(2) Statement attached to return. If
an election is made under section 4.01(1)
of this revenue procedure, and if the issuer
must file a federal income tax return for
the taxable year in which the substitution
occurs, the issuer must attach a signed
statement to its timely filed (including
extensions) federal income tax return for
the taxable year in which the substitution
occurs. On the statement, the issuer
must—
(a) identify the old debt for which
new debt was substituted,
(b) identify the new debt that was
substituted for the old debt,
(c) indicate the issue price of the
new debt (or, if the new debt is issued in a
qualified reopening, the adjusted issue
price of the new debt immediately after
the substitution), and
(d) indicate that the election was
made under this revenue procedure.
.02 Treatment of substitution. If an
election is made under this revenue proce-
dure, the issuer and the electing holders
must report the substitution for federal
income tax purposes as a repurchase of
the old debt in exchange for the new debt
in the taxable year in which the substitu-
tion occurs. The issuer, however, must
account for this deemed exchange under
the rules described in section 4.03 of this
revenue procedure, and each electing
holder must account for this deemed
exchange under the rules described in sec-
tion 4.04 of this revenue procedure.
.03 Issuer’s treatment.
(1) In general. Except as provided in
section 4.03(2) of this revenue procedure,
the issuer must take into account over the
term of the new debt any difference
between the adjusted issue prices of the
old debt at the time of the substitution and
the issue price of the new debt (as deter-
mined under § 1.1273–2). If the aggre-
gate issue price of the new debt that is
transferred to electing holders as a substi-
tute for the old debt is greater than the
aggregate adjusted issue prices of the old
debt for which it is substituted, the issuer
treats the difference as a reduction in the
aggregate issue price of the new debt. As
a result, the difference is taken into
account by the issuer over the term of the
new debt as increased original issue dis-
count or as reduced bond issuance premi-
um (within the meaning of § 1.163–13).
If the aggregate issue price of the new
debt that is transferred to electing holders
as a substitute for the old debt is less than
the aggregate adjusted issue prices of the
old debt for which it is substituted, the
issuer treats the difference as an increase
in the aggregate issue price of the new
debt. As a result, the difference is taken
into account by the issuer over the term of
the new debt as reduced original issue dis-
count or increased bond issuance premi-
um.
(2) Qualified reopening. If the new
debt is issued in a qualified reopening, the
issuer applies the rules in section 4.03(1)
of this revenue procedure by using the
remaining term of the new debt instead of
the term of the new debt and by using the
adjusted issue price of the new debt
immediately after the substitution instead
of the issue price of the new debt.
.04 Electing holder’s treatment.
(1) In general. Notwithstanding any
provision of subtitle A of the Internal
Revenue Code (including §§ 356(a) and
1276(a)), an electing holder does not rec-
ognize any gain or loss as a result of the
deemed exchange. Instead, the holder’s
basis (immediately after the substitution)
in the new debt is the same as the holder’s
adjusted basis (determined as of the date
of the substitution) in the debt instruments
for which the new debt was substituted.
In addition, the holder’s holding period
for the new debt includes the holder’s
holding period for the old debt.
(2) Market discount.
(a) In general. If the stated
redemption price at maturity of the new
debt (as determined under § 1.1273–1(b))
is greater than the holder’s basis (immedi-
ately after the substitution) in the new
debt, the holder treats the difference as
market discount on the new debt and the
new debt as a market discount bond
(unless the amount of the discount is de
minimiswithin the meaning of
§ 1278(a)(2)(C)). See§§ 1276 and 1278
for the treatment of market discount. (The
issue date of the old debt rather than the
issue date of the new debt is used to deter-
mine whether the new debt is a short-term
obligation for purposes of § 1278(a)(1)
(B)(i).) See section 4.04(2)(b) below for
the treatment of any accrued market dis-
count on the old debt.
(b) Accrued market discount. The
rules in this section 4.04(2)(b) apply if, as
of the date of the substitution, there is any
accrued market discount on the old debt
that has not been taken into account by the
holder as ordinary income. If, under sec-
tion 4.04(2)(a) above, there is no market
discount on the new debt or the amount of
any market discount on the new debt is de
minimis, the amount of accrued market
discount on the new debt is zero, and the
accrued market discount on the old debt is
ignored. If, under section 4.04(2)(a)
above, the amount of market discount on
the new debt is more than de minimis, the
lesser of this market discount and the
accrued market discount on the old debt is
treated by the holder, as of the date of the
substitution, as accrued market discount
on the new debt. (Solely for purposes of
determining the accruals of any additional
market discount on the new debt, the
holder’s basis is increased by the amount
of the accrued market discount on the old
debt that is treated as accrued market dis-
count on the new debt.)
(3) Bond premium. If the holder’s
basis in the new debt (immediately after
the substitution) is greater than the stated
redemption price at maturity of the new
debt (as determined under § 1.1273–1(b)),
the holder treats the difference as bond
premium on the new debt. See§§ 1.
171–1 through 1.171–5 for the treatment
February 26, 20017442001–9 I.R.B.

of bond premium.
SECTION 5. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 99–18, as modified by Rev.
Proc. 2000–28, is modified and super-
seded.
SECTION 6. EFFECTIVE DATE
This revenue procedure applies to sub-
stitutions that occur on or after March 13,
2001. For substitutions that occur before
March 13, 2001, Rev. Proc. 99–18, as cur-
rently in effect, continues to apply.
SECTION 7. PAPERWORK
REDUCTION ACT
The collections of information con-
tained in this revenue procedure have
been reviewed and approved by the Office
of Management and Budget (OMB) in
accordance with the Paperwork Reduction
Act (44 U.S.C. 3507) under control num-
ber 1545–1647.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
OMB control number.
The collections of information in this
revenue procedure are in section 4.01.
This information is required to determine
whether an election has been made under
this revenue procedure. The collections
of information are required to obtain a
benefit. The likely respondents are busi-
ness or other for-profit institutions.
The estimated total annual reporting
and/or recordkeeping burden is 75 hours.
The estimated annual burden per
respondent/recordkeeper varies from 1/2
hour to 1 hour, depending on individual
circumstances, with an estimated average
of 3/4 hour. The estimated number of
respondents is 100.
The estimated annual frequency of
responses is on occasion.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become
material in the administration of any
internal revenue law. Generally tax
returns and tax return information are
confidential, as required by 26 U.S.C.
6103.
CONTACT PERSON
For further information regarding this
revenue procedure, contact William E.
Blanchard of the Office of the Associate
Chief Counsel (Financial Institutions and
Products) at (202) 622–3950 (not a toll-
free call).
2001–9 I.R.B.745February 26, 2001
26 CFR 601.202: Closing agreements. (Also Part I, sections 446, 482, 7121; 1.446-1, 301.7121-1)
Rev. Proc. 2001–22
SECTION 1. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 746
SECTION 2. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 746
SECTION 3. SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747
.01 Eligible taxpayers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747
.02 Eligible taxable years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747
.03 Eligible issues generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .747
(1) Factual issues and well established law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .747
(2) Eligible taxable year(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .747
.04 Nonexclusive list of eligible domestic issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .747
.05 Exclusive list of international issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747
.06 Excluded issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747
.07 Methods of accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .748
.08 Definition of taxpayer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .748
SECTION 4. REQUESTING AN LMSB PRE-FILING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 748
.01 General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 748
.02 Specific descriptions of issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .748
.03 Perjury statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .748
.04 Agreement regarding examination or inspection of records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 748
.05 Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749
.06 Where to submit request. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .749
SECTION 5. SELECTING TAXPAYERS FOR LMSB PFA PROGRAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749
.01 Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .749
.02 Criteria for selection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .749
.03 Notification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .749
.04 Requests not accepted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749
SECTION 6. PROCESSING A REQUEST FOR AN LMSB PFA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749
.01 Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .749
.02 Drafting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749

SECTION 1. PURPOSE
.01 This revenue procedure permits a
taxpayer subject to the jurisdiction of the
Large and Mid-Size Business Division
(LMSB) of the Internal Revenue Service
(Service) to request the examination of
specific issues relating to a tax return
before the return is timely filed. This rev-
enue procedure also establishes a frame-
work within which the taxpayer and the
Service can work together in a coopera-
tive environment to resolve the examined
issues. Finally, if the taxpayer and the
Service are able to resolve the examined
issues prior to the filing of the return, this
revenue procedure authorizes the taxpay-
er and the Service to finalize their resolu-
tion by executing an LMSB Pre-Filing
Agreement (LMSB PFA).
.02 The purpose of this revenue proce-
dure is to facilitate and encourage the use of
pre-filing examinations to resolve issues
involving factual questions under well set-
tled principles of law. A pre-filing examina-
tion can often resolve such issues more
effectively and efficiently than a post-filing
examination because the taxpayer and the
Service have more timely access to the
records and personnel relevant to the issue.
A pre-filing examination also provides the
taxpayer with a greater level of certainty
regarding the examined issue at an earlier
point in time than a post-filing examination.
Thus, the use of pre-filing examinations will
benefit both taxpayers and the Service by
improving the quality of tax compliance
while reducing its costs, burdens and delays.
.03 This revenue procedure applies
only to issues involving the application of
well settled principles of law. This rev-
enue procedure is not intended to resolve
issues involving questions of law that are
not well settled with respect to the mater-
ial facts of the issue. Such issues are more
appropriately resolved through the private
letter ruling process. See Rev. Proc.
2001–1, 2001–1 I.R.B. 1 (or successor).
.04 This revenue procedure is not intend-
ed to resolve disputes between the taxpayer
and the Service regarding the correct inter-
pretation of the law, except as authorized by
Delegation Order Nos. 236 (Application of
Appeals Settlement to Coordinated
Examination Program Taxpayers) or 247
(Authority of Examination Case Managers
to Accept Settlement Offers and Execute
Closing Agreements on Industry Speciali-
zation Program and International Field
Assistance Program Issues).
SECTION 2. BACKGROUND
.01 In Notice 2000–12, 2000–9 I.R.B.
727, the Service announced a pilot pro-
gram for LMSB PFAs, under which
LMSB taxpayers could request examina-
tion and resolution of specific issues relat-
ing to returns they expected to file
between September and December, 2000.
The purpose of the pilot program was to
determine if taxpayers and Service per-
sonnel could resolve, prior to the time for
filing the taxpayers’ returns, issues that
were likely to be disputed in post-filing
audits. The Service anticipated that if
such issues could be resolved through
cooperation of the parties, the results
would benefit both taxpayers and the
Service.
.02 In evaluating the pilot program, the
Service, with considerable input from the
participating taxpayers, has concluded
that LMSB PFAs allowed taxpayers to file
more compliant returns within prescribed
time frames, were cost efficient,
decreased taxpayer compliance burdens,
and conserved Service resources.
Accordingly, the Service will offer the
LMSB PFA program on a permanent
basis.
February 26, 20017462001–9 I.R.B.
.03 Return filing requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .749
.04 TEFRA taxpayers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749
.05 Execution prior to filing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749
.06 Execution after filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749
SECTION 7. NATURE AND EFFECT OF AN LMSB PFA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749
.01 Criteria for issuance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 749
.02 Form and content generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .750
.03 Methods of accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .750
SECTION 8. WITHDRAWAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750
SECTION 9. NO LMSB PFA EXECUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750
.01 Accelerated issue resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .750
.02 Administrative appeals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .750
SECTION 10. USER FEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750
.01 Taxpayers subject to fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .750
.02 Amount of fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750
.03 Time and method of payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .750
.04 Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750
SECTION 11. DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750
SECTION 12. RECORD KEEPING REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750
SECTION 13. PAPERWORK REDUCTION ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750
SECTION 14. DRAFTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 751

SECTION 3. SCOPE
.01 Eligible taxpayers. This revenue
procedure applies to all taxpayers under
the jurisdiction of the LMSB that desire to
advance through an LMSB PFA the pre-
filing resolution of issues that may other-
wise be the subject of a post-filing exam-
ination.
.02 Eligible taxable years. An eligible
taxpayer may request an LMSB PFA with
respect to the current taxable year or any
prior taxable year for which the return is
not yet due (including extensions) and is
not yet filed. However, taxpayers are
reminded that the selection criteria for the
LMSB PFA program include both the
amount of time remaining until the date
for filing the return to which the desired
LMSB PFA would relate and the overall
likelihood that the LMSB PFA process
can be completed prior to such date. See
section 5.02 of this revenue procedure.
Taxpayers are therefore urged to submit
their LMSB PFA requests at the earliest
possible time in order to maximize the
likelihood that they will be selected for
the LMSB PFA program and that an
LMSB PFA agreement can be finalized
prior to the filing of the return(s).
.03 Eligible issues generally.
(1) Factual issues and well estab-
lished law. The Service generally will
consider entering into an LMSB PFA on
any issue that represents either (i) a factu-
al determination or (ii) an application of
legal principles to agreed upon facts in
which the legal principles are well estab-
lished in their application to such facts.
However, the Service will not consider
entering into an LMSB PFA with respect
to (i) any international issue that is not
listed in section 3.05 of this revenue pro-
cedure, or (ii) any excluded issue listed in
section 3.06 of this revenue procedure.
(2) Eligible taxable year(s). An eli-
gible issue must relate to an eligible year
for which the LMSB PFA is sought; an
issue is not an eligible issue if it relates to
any prior or subsequent taxable year.
Thus, the valuation of a specific asset dur-
ing an eligible year is generally an eligible
issue for the LMSB PFA program, where-
as the valuation of an asset during a prior
or subsequent taxable year is not.
.04 Nonexclusive list of eligible domes-
tic issues. The following is a list of
domestic issues that are likely to be suit-
able for resolution through the LMSB
PFA program. This list is nonexclusive
and is not intended to prevent submission
of other domestic issues that fall within
the scope of the LMSB PFA program.
(1) the current valuation of specific
assets (except in the context of transfer
pricing), but not the appropriateness of a
valuation methodology;
(2) the allocation of the purchase or
sale price of a business among the assets
acquired or sold;
(3) the identification and documenta-
tion of hedging transactions;
(4) issues relating to in-house
research expenses under § 41;
(5) the allocation of costs among dif-
ferent categories of deductible and capital
items, in contexts where there is a pub-
lished revenue ruling, e.g.repairs (Rev.
Rul. 94–12, 1994–1 C.B. 36), advertising
(Rev. Rul. 92–80, 1992–2 C.B. 57), and
Y2K costs (Rev. Proc. 97–50, 1997–2
C.B. 525);
(6) identification of investigatory
costs incurred to determine whether to
enter a new business and, if so, which
business to enter, for purposes of qualify-
ing such costs as start-up costs under
§ 195 (seeRev. Rul. 99–23, 1999–1 C.B.
998);
(7) whether a taxpayer’s financial
statement presentation of its last-in, first-
out (LIFO) inventory is consistent with
the LIFO conformity requirement under
§ 1.472–2(e);
(8) whether a taxpayer’s inventory
contains “sub-normal” goods within the
meaning of § 1.471–2(c), and the valua-
tion of such goods;
(9) whether a taxpayer is considered
to be the tax owner of the property being
produced under § 1.263A–2(a)(1)(ii)(A);
(10) whether a manufacturing con-
tract newly entered into by the taxpayer is
required to be accounted for as a long-
term contract under § 460;
(11) the determination of appropriate
classification under § 168(e) for depre-
ciable property placed in service during
the eligible taxable year; and
(12) whether a security became
worthless during the eligible taxable year,
for purposes of § 165(g).
.05 Exclusive list of international
issues. The following is a list of interna-
tional issues that are likely to be suitable
for resolution through the LMSB PFA
program. This list is exclusive; the
Service will not consider entering into an
LMSB PFA with respect to an internation-
al issue that is absent from this list.
(1) the valuation of specified assets,
but not a retrospective change in the
method of valuation or a determination of
appropriate valuation methodology;
(2) the proper SIC or NAIC classifi-
cation code(s) for the taxpayer’s line(s) of
business;
(3) whether the taxpayer’s apportion-
ment of deductions, including general and
administrative expenses, that are related
to all gross income properly reflects the
factual relationship between deductions
and gross income as required by
§ 1.861–8(f)(5);
(4) whether, as a factual matter, an
expense relates to fewer than all members
of an affiliated group for purposes of
§ 1.861–14T(c)(2);
(5) the verification of amounts of
foreign taxes paid and the applicable
exchange rates, but not whether such
taxes are creditable; and
(6) whether the taxpayer must recap-
ture a dual consolidated loss following a
triggering event under § 1503(d).
.06 Excluded issues.The Service gener-
ally will not enter into an LMSB PFA on
the following types of issues:
(1) Transfer pricing issues that are
addressed under the Advance Pricing
Agreement program (Rev. Proc. 96–53,
1996–2 C.B. 375);
(2) Issues for which the taxpayer has
filed a request for Competent Authority
assistance;
(3) Issues that can be resolved by
requesting a change in method of account-
ing on Form 3115, Application for
Change in Accounting Method;
(4) Issues of reasonable cause, due
diligence, good faith, clear and convinc-
ing evidence, or any other similar stan-
dard under Subtitle F (Procedure and
Administration) of the Internal Revenue
Code;
(5) Issues involving the applicability
of any penalty or criminal sanction;
(6) Issues that are, or will be, the
subject of a pending or contemplated
request for a private letter ruling, account-
ing method change request, determination
letter or technical advice memorandum;
(7) Issues for which the taxpayer
proposes a resolution that is contrary to a
private letter ruling, accounting method
change request, determination letter, tech-
nical advice memorandum, or closing
2001–9 I.R.B.747February 26, 2001

agreement previously issued to or regard-
ing the taxpayer;
(8) Issues for which the taxpayer
proposes a resolution that is contrary to a
position proposed by the Service in
response to a private letter ruling, deter-
mination letter or accounting method
change request that was withdrawn by the
taxpayer;
(9) Issues that are the subject of liti-
gation between the Service and the tax-
payer with respect to an earlier taxable
period;
(10) Issues that have been designated
for litigation by the Office of Chief
Counsel;
(11) Issues involving a tax shelter
described in § 6662(d)(2)(C)(iii); and
(12) Issues that require a determina-
tion of whether the taxpayer, rather than
another entity, is the common law
employer.
.07 Methods of accounting. The LMSB
PFA’s application of the law to the tax-
payer’s facts may result in treating an item
differently from earlier treatments of sim-
ilar items in prior taxable years (e.g.,
deducting items that previously were cap-
italized, such as certain ISO 9000 costs).
If so, the differing treatment may consti-
tute a change in the method of accounting
for that item. The LMSB PFA will resolve
only the factual characterization of the
items at issue for the taxable year(s) to
which the LMSB PFA relates, but will not
constitute the Commissioner’s consent to
make any accounting method change that
may be required to conform the agreed
upon factual characterization of the item
with identical items in earlier years.
Permission to make any accounting
method changes required by the LMSB
PFA’s resolution of the factual and legal
issues must be obtained using the applica-
ble administrative procedures. SeeRev.
Proc. 99–49, 1999–2 C.B. 725 (automatic
consent to change certain accounting
methods); Rev. Proc. 97–27, 1997–1 C.B.
680.
.08 Definition of taxpayer.For purpos-
es of section 3 of this revenue procedure,
any reference to the taxpayer also
includes a related taxpayer and any prede-
cessor of the taxpayer or a related taxpay-
er. A related taxpayer is one related with-
in the meaning of § 267 or a member of an
affiliated group within the meaning of
§ 1504 that includes the taxpayer. A pre-
decessor is an entity for whose tax liabili-
ty the taxpayer or a related taxpayer is or
was primarily or secondarily liable.
SECTION 4. REQUESTING AN LMSB
PRE-FILING AGREEMENT
.01 General information. A request for
an LMSB PFA must contain the following
general information about the taxpayer
and its request for an LMSB PFA:
(1) Names, addresses, telephone
numbers, and taxpayer identification
numbers of all interested parties;
(2) The name, title, address and tele-
phone number of a person to contact (If
the person to contact is an authorized rep-
resentative of the taxpayer, a properly
executed Form 2848, Power of Attorney
and Declaration of Representative, must
accompany the request);
(3) The annual accounting period
and the overall method of accounting
(e.g., cash receipts and disbursements or
accrual) for maintaining the accounting
books and filing the federal income tax
return of all interested parties;
(4) The location of the taxpayer’s tax
staff and records;
(5) A brief description of the taxpay-
er’s business operations, including the
NAICS (North American Industry Code
System) classification used by the taxpay-
er on its last filed return; and
(6) The taxable period for which the
LMSB PFA is sought, the last date on
which the taxpayer may file (with exten-
sions) a timely return for that period, and
(if earlier) the date on which the taxpayer
intends to file that return;
.02 Specific descriptions of issues.A
request for an LMSB PFA should also
contain a separate written statement for
each proposed issue that concisely:
(1) Describes the issue;
(2) Summarizes all the facts that are
relevant and material to the issue;
(3) States whether the issue involves
an item or transaction in which two or
more persons may take contrary positions
with respect to the item or transaction (a
“whipsaw” issue);
(4) Summarizes all relevant legal
authorities, including citations to specific
sections of the Internal Revenue Code,
Income Tax Regulations, case law and
other authorities, and discusses why the
issue is an eligible issue as defined in sec-
tion 3 of this revenue procedure;
(5) Summarizes and discusses the
implications of any known authorities that
may be potentially contrary to the position
advanced, such as legislation (or pending
legislation), tax treaties, court decisions,
regulations, revenue rulings, revenue pro-
cedures, notices, or announcements;
(6) Discusses the suitability of the
issue for the LMSB PFA program in light
of the purpose and criteria set forth in sec-
tions 1, 2, and 3 of this revenue proce-
dure;
(7) Discusses whether the LMSB
PFA will have any effect in taxable peri-
ods either before or after the taxable peri-
od for which the LMSB PFA is sought;
(8) States whether the taxpayer has
applied for competent authority assistance
with respect to the issue for the year in
question or any prior year;
(9) States whether the issue, or any
part of the issue, has ever been the subject
of a request for private letter ruling,
determination letter, consent to change a
method of accounting, or technical advice
with respect to the year in question or any
prior year;
(10) Discusses whether the issue can
be resolved by the date on which the tax-
payer intends to file its return for the tax-
able period in question; and
(11) Describes the availability, orga-
nization and location of the records and
other evidence that substantiate the tax-
payer’s proposed position on the issue.
.03 Perjury statement.A request for an
LMSB PFA, and any supplemental sub-
missions (including additional docu-
ments), must include a declaration, signed
by a person currently authorized to sign
the taxpayer’s federal income tax return,
in the following form:
Under penalties of perjury, I declare
that I have examined this request,
including accompanying documents,
and to the best of my knowledge and
belief, the facts presented in support of
the request for the Pre-Filing
Agreement are true, correct and com-
plete.
.04 Agreement regarding examination
or inspection of records. The request for a
LMSB PFA must contain a statement by
the taxpayer that the taxpayer agrees that
the inspection of records and testimony
under the LMSB PFA procedures will not
preclude or impede (under § 7605(b) or
any administrative provisions adopted by
February 26, 20017482001–9 I.R.B.

the Service) a later examination of a
return or inspection of records with
respect to any taxable year needed to
resolve the issue in the request for an
LMSB PFA, and that the Service need not
comply with any applicable procedural
restrictions (such as providing notice
under § 7605(b) before beginning such
examination or inspection).
.05 Signature.The request for an
LMSB PFA must be signed by the taxpay-
er or the representative properly autho-
rized by the taxpayer in the accompanying
Form 2848, Power of Attorney and
Declaration of Representative.
.06 Where to submit request.A request
for an LMSB PFA:
(1) In the case of a taxpayer whose
return is currently under examination by
the LMSB, should be submitted to the
LMSB Team Manager in charge of the
examination; or
(2) In the case of a taxpayer whose
return is not currently under examination,
should be sent to the following address:
Internal Revenue Service
Attn: LMSB
Manager, Pre-Filing Services,
Mint Building
1111 Constitution Avenue, NW
Washington, DC 20224
(3) Facsimile transmissions may be
made to (202) 283-8427 (not a toll free
call).
SECTION 5. SELECTING TAXPAYERS
FOR LMSB PFA PROGRAM
.01 Jurisdiction.The LMSB Industry
Director with jurisdiction over the taxpay-
er will make the final decision whether to
proceed with the taxpayer’s request for an
LMSB PFA. (For purposes of this rev-
enue procedure, the term “LMSB Industry
Director” includes a duly authorized
designee of an LMSB Industry Director.)
.02 Criteria for selection.The criteria
for selecting taxpayers to participate in
the LMSB PFA program include:
(1) The suitability of the issue pre-
sented for the LMSB PFA program;
(2) The direct or indirect impact of
an LMSB PFA upon other years, issues,
taxpayers, or related cases;
(3) The availability of Service
resources;
(4) The ability and willingness of the
taxpayer to dedicate sufficient resources
to the LMSB PFA process;
(5) The likelihood that the LMSB
PFA may result in two or more persons
taking contrary positions with respect to
an item or transaction (“whipsaw”);
(6) The time remaining until the due
date of the return to which the LMSB PFA
relates; and
(7) The overall probability of com-
pleting the process and entering into an
LMSB PFA by the proposed date for filing
the taxpayer’s return.
.03 Notification. A representative of
LMSB will contact the taxpayer within 14
business days of receipt of the taxpayer’s
request for an LMSB PFA to discuss the
potential suitability of the issue(s) for
inclusion in the LMSB PFA program.
Thereafter, a representative of LMSB will
inform the taxpayer in writing whether it
has been selected for participation in the
LMSB PFA program.
.04 Requests not accepted. A taxpayer
is not entitled to a conference to appeal a
decision not to go forward with the LMSB
PFA process. A taxpayer not selected for
the PFA program remains eligible for
other procedures for early issue resolu-
tion, including the Accelerated Issue
Resolution (AIR) program (see Rev. Proc.
94–67, 1994–2 C.B. 800).
SECTION 6. PROCESSING A
REQUEST FOR AN LMSB PFA
.01 Planning. If the Service accepts the
taxpayer’s request for an LMSB PFA, a
representative of LMSB will contact the
taxpayer to schedule an orientation meet-
ing with the taxpayer and examination per-
sonnel to discuss the LMSB PFA process
and explain the roles and responsibilities
of each participant. Immediately following
the orientation meeting, the taxpayer and
the Service should meet to formulate a
plan and timeline that will result in a thor-
ough development of the facts and a suc-
cessful resolution of the issue prior to the
time for filing the taxpayer’s return.
.02 Drafting. After the development of
the facts and issues, the Team Manager
will informally meet with the taxpayer to
determine whether the parties can reach
agreement on a proposed LMSB PFA. If
the parties reach agreement, the taxpayer
will work with the Service to prepare the
initial draft of the LMSB PFA closing
agreement. The LMSB PFA will be pre-
pared by the taxpayer and the audit team
with assistance, as necessary, from the
LMSB PFA Program Manager, the Office
of Chief Counsel, or other Service person-
nel.
.03 Return filing requirements. The
Service’s acceptance of a taxpayer’s
request for a LMSB PFA does not suspend
or waive the normal filing requirements for
any tax returns that may be affected by the
proposed LMSB PFA. If an LMSB PFA is
reached prior to the filing of the return, the
taxpayer will report the transaction(s)
addressed in the LMSB PFA in accordance
with the terms of the LMSB PFA.
.04 TEFRA taxpayers. If the taxpayer
requesting the LMSB PFA is subject to the
procedures set forth in §§ 6221 through
6233 and the issue(s) in the LMSB PFA
will become a partnership item or items as
defined in § 6231 when the return is filed,
the LMSB PFA process will be terminated
with respect to such issue(s) if no agree-
ment on such issues is reached with all
partners within 30 business days prior to
the extended due date of the return.
.05 Execution prior to filing. If an
LMSB PFA is executed prior to the filing
of the return to which the LMSB PFA
relates, the taxpayer must file such return
according to the terms and conditions set
forth in the LMSB PFA. A copy of the
LMSB PFA must be attached to the return.
.06 Execution after filing.If the
Service and the taxpayer cannot reach
agreement prior to the filing of the return,
the Service and the taxpayer may contin-
ue to attempt to resolve the issue and enter
into an LMSB PFA. If the Service and the
taxpayer desire to execute an LMSB PFA
after the filing of a return to which the
LMSB PFA relates and the return is not
consistent with the terms and conditions
of the contemplated LMSB PFA, the tax-
payer is expected to file an amended
return consistent with the terms and con-
ditions of the LMSB PFA. The LMSB
PFA should contain a statement whereby
the taxpayer acknowledges the expecta-
tion that an amended return will be filed
and that if such return is not filed that the
Service will assess any additional tax due.
A copy of the LMSB PFA must be
attached to the amended return.
SECTION 7. NATURE AND EFFECT
OF AN LMSB PFA
.01 Criteria for issuance. The Director,
Field Operations (or other authorized offi-
cial) may execute an LMSB PFA if:
2001–9 I.R.B.749February 26, 2001

(1) Entering into the LMSB PFA is
consistent with the goals of the LMSB
PFA program;
(2) The resolution(s) of issue(s) in
the LMSB PFA reflect well settled legal
principles and correctly apply those prin-
ciples (or positions authorized under
Delegation Order No. 236 or 247) to the
facts established by the audit team; and
(3) There is an advantage in having the
issue(s) permanently and conclusively
closed for the taxable period covered by the
LMSB PFA, or that the taxpayer shows
good and sufficient reasons for desiring a
closing agreement and that the United
States will sustain no disadvantage through
consummation of such an agreement (see
§ 301.7121–1 (a) of the Regulations on
Procedure and Administration).
.02 Form and content generally.An
LMSB PFA between the Service and the
taxpayer is a closing agreement under
§ 7121, and, accordingly, must comply
with the requirements of Rev. Proc.
68–16, 1968–1 C.B. 770, regarding the
form and content of closing agreements.
.03 Methods of accounting. An LMSB
PFA shall not constitute a final determina-
tion under § 7121 with respect to the
methods of accounting of the taxpayer for
any taxable year. Further, an LMSB PFA
does not constitute the consent of the
Commissioner under § 446(e) to any
change in method of accounting by the
taxpayer.
SECTION 8. WITHDRAWAL
.01 At any time prior to the execution of
the LMSB PFA, either the taxpayer or the
Service may withdraw from consideration
all or part of the request for an LMSB
PFA. The withdrawal must be in writing
and signed by the party initiating the with-
drawal action, i.e., the taxpayer or his
authorized representative or the Industry
Director.
.02 Notwithstanding the withdrawal by
either the taxpayer or the Service of any
or all the issues in the request for an
LMSB PFA, the taxpayer’s agreement
under section 4.04 of this revenue proce-
dure will remain effective.
SECTION 9. NO LMSB PFA
EXECUTED
.01 Accelerated issue resolution. If the
Service and the taxpayer cannot agree
upon and execute an LMSB PFA with
respect to an issue, either before or after
the filing of the return to which the LMSB
PFA relates, and the Service subsequently
disagrees with the taxpayer’s treatment of
the issue on such return, the taxpayer and
the Service may continue their efforts to
reach an agreement using post filing pro-
cedures, such as the Accelerated Issue
Resolution (AIR) procedures under Rev.
Proc. 94–67, 1994–2 C.B. 800. This con-
tinuation of the resolution process does
not require a new application.
.02 Administrative appeals. If the
Service and the taxpayer are unable to
resolve an issue by an LMSB PFA or an
AIR agreement, the taxpayer may pursue
an administrative appeal either by
requesting an Early Referral to Appeals
under procedures set forth in Rev. Proc.
99–28, 1999–2 C.B. 109, or by protesting
any proposed deficiency related to the
issue.
SECTION 10. USER FEE
.01 Taxpayers subject to fees.
Taxpayers are subject to a user fee only if
they are selected to participate in the
LMSB PFA program. Taxpayers not
selected to participate in the LMSB PFA
program are not subject to user fees.
.02 Amount of fee. The user fees for
taxpayers selected to participate in the
LMSB PFA program are:
(1) $10,000 for taxpayers having
$250,000,000 or more in assets;
(2) $5,000 for taxpayers having at
least $50,000,000, but less than
$250,000,000 in assets; and
(3) $1,000 for taxpayers having at
least $5,000,000, but less than
$50,000,000 in assets.
For purposes of determining the appropri-
ate user fee, the amount of assets held by
the taxpayer will be determined by its
most recently filed return.
.03 Time and method of payment.
Taxpayers subject to user fees must sub-
mit payment within 30 business days of
receiving notification that they have been
selected to participate in the LMSB PFA
program. Payment must be made by a
check or money order payable to the
Internal Revenue Service.
.04 Withdrawal. Notwithstanding the
withdrawal by either the taxpayer or the
Service of any or all of the issues in the
request for an LMSB PFA, the user fee
paid by the taxpayer generally will not be
refundable.
SECTION 11. DISCLOSURE
.01 LMSB PFAs are closing agree-
ments entered into pursuant to § 7121. As
such, both an LMSB PFA and the infor-
mation generated or received by the
Service during the LMSB PFA process
constitute confidential return information
as defined by § 6103 (b)(2)(D). As pre-
scribed by Congress, the Service will pub-
lish annual reports summarizing the oper-
ation of the LMSB PFA program,
consistent with the restrictions of § 6103.
LMSB PFAs are not written determina-
tions under § 6110, and accordingly, are
exempt from disclosure to the public
under the Freedom of Information Act
(FOIA).
SECTION 12. RECORD KEEPING
REQUIREMENTS
.01 No aspect of the LMSB PFA
process will affect the record keeping
requirements imposed by any section of
the Internal Revenue Code.
.02 The taxpayer must maintain a copy
of the LMSB PFA supporting documents
and books of account and records to
enable the Service to insure the taxpayer’s
compliance with the LMSB PFA. These
records may be specified in the LMSB
PFA itself or in separate agreements.
SECTION 13. PAPERWORK
REDUCTION ACT
The collection of information contained
in this revenue procedure has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507) under the control
number 1545–1684.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid OMB control number. The
collections of information in this revenue
procedure are in sections 4, 6 and 12. The
information collected under section 4 is
required to provide the Service with the
information necessary to determine which
taxpayers should be included in the
LMSB PFA program. The information
collected under section 6 will be used to
resolve the taxpayer’s issue and to support
any PFA entered into between the taxpay-
er and the Service. The record keeping
February 26, 20017502001–9 I.R.B.

requirements under section 12 will be
used for tax administration. The collec-
tions of information under sections 4 and
6 are voluntary. Once an LMSB PFA is
entered into, the record keeping require-
ments under section 12 are mandatory.
The likely respondents are businesses or
other for-profit institutions.
The estimated total annual reporting
and/or record keeping burden is 10,200
hours.
The estimated annual burden per
respondent/recordkeeper varies from 5
hours to 126 hours, depending on whether
a taxpayer applying to the LMSB PFA
program is accepted into the program. The
estimated annual burden for taxpayers
who apply to the LMSB PFA program and
are accepted is 126 hours. The estimated
annual burden for taxpayers who apply to
the LMSB PFA program and are not
accepted is 5 hours. The estimated num-
ber of taxpayers who apply to the LMSB
PFA program and are accepted is 75. The
estimated number of taxpayers who apply
to the LMSB PFA program and are not
accepted is 150. The estimated total num-
ber of respondents and/or recordkeepers is
225.
The estimated annual frequency of
responses is on occasion.
Books or records relating to a collec-
tion of information must be retained so
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
SECTION 14. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Grant Anderson of the Office
of the Associate Chief Counsel (Income
Tax and Accounting). For further infor-
mation about this revenue procedure, con-
tact Mike Mann, Senior Program Analyst,
LMSB Office of Pre-filing and Technical
Guidance, at (202) 283-8424 (voice)(not a
toll free call), (202) 283-8427 (fax) (not a
toll-free call), or pfa.info@irs.gov
(e-mail).
2001–9 I.R.B.751February 26, 2001

Announcement of the Consent Voluntary Suspension of Attorneys,
Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries
From Practice Before the Internal Revenue Service
Under 31 Code of Federal Regulations,
Part 10, an attorney, certified public ac-
countant, enrolled agent or enrolled actu-
ary, in order to avoid the institution or
conclusion of a proceeding for his disbar-
ment or suspension from practice before
the Internal Revenue Service, may offer
his consent to suspension from such prac-
tice. The Director of Practice, in his dis-
cretion, may suspend an attorney, certi-
fied public accountant, enrolled agent or
enrolled actuary in accordance with the
consent offered.
Attorneys, certified public accountants,
enrolled agents and enrolled actuaries are
prohibited in any Internal Revenue Ser-
vice matter from directly or indirectly em-
ploying, accepting assistance from, being
employed by or sharing fees with, any
practitioner disbarred or suspended from
practice before the Internal Revenue Ser-
vice.
To enable attorneys, certified public ac-
countants, enrolled agents and enrolled ac-
tuaries to identify practitioners under con-
sent suspension from practice before the
Internal Revenue Service, the Director of
New Schedule N (Form 1120),
Foreign Operations of U.S.
Corporations for the 2000 Tax
Year
Announcement 2001–13
New Schedule N (Form 1120) is now
available. A corporation that, at any time
during the 2000 tax year, had assets in or
operated a business in a foreign country
or a U.S. possession, may have to file
Schedule N (Form 1120) with the corpo-
ration’s income tax return.
You can obtain Schedule N (Form
1120) by telephone or by using IRS elec-
tronic information services.
Request by Number or address
Telephone 1-800-TAX-FORM
(1-800-829-3676)
Personal computer:
IRS Web Site www.irs.gov
File transfer protocol ftp.irs.gov
Revision of Form 8851,
Summary of Archer MSAs
Announcement 2001–21
Purpose
This announcement advises trustees
and custodians of medical savings
accounts of the requirement to file Form
8851, Summary of Archer MSAs, and
changes for magnetic and electronic fil-
ing.
Background
Sections 201 and 202 of Public Law
106–554, enacted December 21, 2000,
change the name of medical savings
accounts to Archer MSAs, extend the
Archer MSA program through 2002, and
reinstate the reporting requirement for
trustees and custodians of Archer MSAs.
Reporting Requirements
Filers are required to report on Form
8851 by August 1, 2001, the total number
of Archer MSAs they established from
January 1, 2001, through June 30, 2001,
the total number of previously uninsured
account holders, the total number of
excludable account holders, and the
names and social security numbers of
account holders. We expect to make the
revised Form 8851 available by May
2001. There are no major changes to the
November 1997 version of Form 8851.
Filing Requirements
The minimum reporting requirement to
file magnetically or electronically remains
at 250 Archer MSAs. However, filers
reporting fewer than 250 Archer MSAs are
also encouraged to file magnetically or elec-
tronically. We will issue a revenue proce-
dure with the magnetic media and electron-
ic filing requirements for Form 8851 no
later than May 2001 to update Rev. Proc.
97–25, which will include the following
changes.
• The mailing address for the
Martinsburg Computing Center has
changed. All correspondence and
media relating to Forms 8851 should
be sent to: IRS-Martinsburg
Computing Center, Information
Reporting Program, 240 Murall
Drive, Kearneysville, WV 25430
• The only acceptable media and
method of filing Forms 8851 are as
follows:
Magnetic Tape
Tape Cartridge
8mm, 4mm, and Quarter
Inch Cartridges (QIC)
3.5-Inch Diskette*
Electronic Filing – FIRE
System**
* The IRS no longer has the
capability to process non-MS-
DOS compatible diskettes.
The 3.5-inch diskettes created
on a System 36 or AS400 are
not acceptable.
** The telephone number for
the FIRE System is 304-
262-2400. If filers have
any questions about the
FIRE System, they should
call the technical staff at
304-263-8700. Filers
should use Publication
3609 for electronic filing
information until the
revised revenue procedure
is published.
• The only format change is in the
Trustee “A” Record. In the Trustee
“A” Record, Field Position 136,
Report Period, enter the last digit of
the year for which the Form 8851 is
being filed (i.e., enter a “1” for tax
year 2001).
February 26, 20017522001–9 I.R.B.
Part IV. Items of General Interest

2001–9 I.R.B.753February 26, 2001
Date of
NameAddressDesignationSuspension
Sinclair, Gerald A.Hammond, INEnrolledAugust 16, 2000
Agentto
August 15, 2001
Barrett, NormanDover, DECPASeptember 1, 2000
to
November 30, 2001
Janus, Stephen E.Michigan City, INCPASeptember 20, 2000
to
September 19, 2003
McCormack, Frank J.Castlebury, FLCPASeptember 20, 2000
to
September 19, 2003
Serio, Vinson J.Metairie, LAEnrolled October 1, 2000
Agentto
September 30, 2003
Baker, Linda L.West Orange, NJCPAOctober 20, 2000
to
April 19, 2004
Duncanson, Thomas D.Mankato, MNCPANovember 7, 2000
to
May 6, 2003
West, KeithPasadena, CAEnrolledNovember 15, 2000
Agentto
May 14, 2001
Overbeck, MariettaEvansville, INCPANovember 15, 2000
to
November 14, 2002
Garrison, John L.Guymon, OKCPANovember 20, 2000
to
November 19, 2002
Aiken, Kim Allen Olympia, WACPADecember 10, 2000
to
June 9, 2002
D’Arata, David J.Buffalo, NYCPAJanuary 1, 2001
to
June 30, 2003
Gambrel, Thomas R.Corbin, KYCPAJanuary 1, 2001
to
December 31, 2004
Practice will announce in the Internal
Revenue Bulletin the names and addresses
of practitioners who have been suspended
from such practice, their designation as at-
torney, certified public accountant, en-
rolled 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 ac-
tion and will continue to appear in the
weekly Bulletins for five successive
weeks or for as many weeks as is practica-
ble for each attorney, certified public ac-
countant, enrolled agent or enrolled actu-
ary 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 Ser-
vice:

February 26, 20017542001–9 I.R.B.
Effective
NameAddressDesignationDate
Joyner, JosephGary, INCPANovember 24, 2000
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 Internal
Revenue Service any practitioner who,
within five years, from the date the expe-
dited proceeding is instituted, (1) has had
a license to practice as an attorney, certi-
fied public accountant, or actuary sus-
pended 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 accountants,
enrolled agents, and enrolled actuaries are
prohibited in any Internal Revenue Service
matter from directly or indirectly employ-
ing, accepting assistance from, being em-
ployed by, or sharing fees with, any practi-
tioner disbarred or suspended from practice
before the Internal Revenue Service.
To enable attorneys, certified pubic ac-
countants, enrolled agents, and enrolled ac-
tuaries to identify practitioners under expe-
dited suspension from practice before the
Internal Revenue Service, the Director of
Practice will announce in the Internal Rev-
enue Bulletin the names and addresses of
practitioners who have been suspended
from such practice, their designation as at-
torney, certified public accountant, enrolled
agent, or enrolled actuary, and date or pe-
riod of suspension. This announcement 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 Cu-
mulative Bulletin.
The following individuals have been
placed under suspension from practice be-
fore the Internal Revenue Service by
virtue of the expedited proceeding provi-
sions of the applicable regulations:
Date of
NameAddressDesignationSuspension
Barger, Robert E.Garden Ridge, TXAttorneyIndefinite
from
October 10, 2000
Roberts, Thomas W.Cincinnati OHCPAIndefinite
from
October 24, 2000
Announcement of the Expedited Suspension of Attorneys, Certified
Public Accountants, Enrolled Agents, and Enrolled Actuaries From
Practice Before the Internal Revenue Service
Announcement of the Disbarment and Suspension of Attorneys,
Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries
From Practice Before the Internal Revenue Service
Under Section 330, Title 31 of the
United States Code, the Secretary of the
Treasury, after due notice and opportunity
for hearing, is authorized to suspend or
disbar from practice before the Internal
Revenue Service any person who has vio-
lated the rules and regulations governing
the recognition of attorneys, certified
public accountants, enrolled agents or en-
rolled actuaries to practice before the In-
ternal Revenue Service.
Attorneys, certified public accountants,
enrolled agents, and enrolled actuaries are
prohibited in any Internal Revenue Service
matter from directly or indirectly employing,
accepting assistance from, being employed
by, or sharing fees with any practitioner dis-
barred or under suspension from practice be-
fore the Internal Revenue Service.
To enable attorneys, certified public ac-
countants, enrolled agents and enrolled
actuaries to identify such disbarred or sus-
pended practitioners, the Director of Prac-
tice will announce in the Internal Revenue
Bulletin the names and addresses of prac-
titioners who have been suspended from
such practice, their designation as attor-
ney, certified public accountant, enrolled
agent or enrolled actuary, and the date of
disbarment or period of suspension. This
announcement will appear in the weekly
Bulletin for five successive weeks or as
long as it is practicable for each attorney,
certified public accountant, enrolled agent
or enrolled actuary so suspended or dis-
barred and will be consolidated and pub-
lished in the Cumulative Bulletin.
After due notice and opportunity for
hearing before an administrative law
judge, the following individual has been
disbarred from futher practice before the
Internal Revenue Service:

February 26, 2001i2001–9 I.R.B.
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”)
that have an effect on previous rulings
use the following defined terms to de-
scribe the effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security
Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Definition of Terms

2001–9 I.R.B.iiFebruary 26, 2001
Numerical Finding List
1
Bulletins 2001–1 through 2001–8
Announcements:
2001–1, 2001–2 I.R.B. 277
2001–2, 2001–2 I.R.B. 277
2001–3, 2001–2 I.R.B. 278
2001–4, 2001–2 I.R.B. 286
2001–5, 2001–2 I.R.B. 286
2001–6, 2001–3 I.R.B. 357
2001–7, 2001–3 I.R.B. 357
2001–8, 2001–3 I.R.B. 357
2001–9, 2001–3 I.R.B. 357
2001–10, 2001–4 I.R.B. 431
2001–11, 2001–4 I.R.B. 432
2001–12, 2001–6 I.R.B. 526
2001–14, 2001–7 I.R.B. 648
2001–15, 2001–8 I.R.B. 715
2001–16, 2001–8 I.R.B. 715
2001–17, 2001–8 I.R.B. 716
2001–20, 2001–8 I.R.B. 716
Notices:
2001–1, 2001–2 I.R.B. 261
2001–2, 2001–2 I.R.B. 265
2001–3, 2001–2 I.R.B. 267
2001–4, 2001–2 I.R.B. 267
2001–5, 2001–3 I.R.B. 327
2001–6, 2001–3 I.R.B. 327
2001–7, 2001–4 I.R.B. 374
2001–8, 2001–4 I.R.B. 374
2001–9, 2001–4 I.R.B. 375
2001–10, 2001–5 I.R.B. 459
2001–11, 2001–5 I.R.B. 464
2001–12, 2001–3 I.R.B. 328
2001–13, 2001–6 I.R.B. 514
2001–14, 2001–6 I.R.B. 516
2001–15, 2001–7 I.R.B. 589
Proposed Regulations:
REG–209461–79, 2001–8, I.R.B. 712
REG–246256–96, 2001–8, I.R.B. 713
REG–251701–96, 2001–4, I.R.B. 396
REG–106542–98, 2001–5, I.R.B. 473
REG–121928–98, 2001–6, I.R.B. 520
REG–103320–00, 2001–8, I.R.B. 714
REG–104683–00, 2001–4, I.R.B. 407
REG–106702–00, 2001–4, I.R.B. 424
REG–106791–00, 2001–6, I.R.B. 521
REG–107176–00, 2001–4, I.R.B. 428
REG–107566–00, 2001–3, I.R.B. 346
REG–114082–00, 2001–7, I.R.B. 629
REG–114083–00, 2001–7, I.R.B. 630
REG–114084–00, 2001–7, I.R.B. 633
REG–116468–00, 2001–6, I.R.B. 522
REG–119352–00, 2001–6, I.R.B. 525
Railroad Retirement Quarterly Rates:
2001–2, I.R.B. 258
Revenue Procedures:
2001–1, 2001–1 I.R.B. 1
2001–2, 2001–1 I.R.B. 79
2001–3, 2001–1 I.R.B. 111
2001–4, 2001–1 I.R.B. 121
Revenue Procedures:—continued:
2001–5, 2001–1 I.R.B. 164
2001–6, 2001–1 I.R.B. 194
2001–7, 2001–1 I.R.B. 236
2001–8, 2001–1 I.R.B. 239
2001–9, 2001–3 I.R.B. 328
2001–10, 2001–2 I.R.B. 272
2001–11, 2001–2 I.R.B. 275
2001–12, 2001–3 I.R.B. 335
2001–13, 2001–3 I.R.B. 337
2001–14, 2001–3 I.R.B. 343
2001–15, 2001–5 I.R.B. 465
2001–16, 2001–4 I.R.B. 376
2001–17, 2001–7 I.R.B. 589
2001–18, 2001–8 I.R.B. 708
Revenue Rulings:
2001–2, 2001–2 I.R.B. 255
2001–3, 2001–3 I.R.B. 319
2001–4, 2001–3 I.R.B. 295
2001–5, 2001–5 I.R.B. 451
2001–6, 2001–6 I.R.B. 491
2001–7, 2001–7 I.R.B. 541
2001–9, 2001–8 I.R.B. 652
Treasury Decisions:
8910, 2001–2 I.R.B. 258
8911, 2001–3 I.R.B. 321
8912, 2001–5 I.R.B. 452
8913, 2001–3 I.R.B. 300
8914, 2001–8 I.R.B. 653
8915, 2001–4 I.R.B. 359
8916, 2001–4 I.R.B. 360
8917, 2001–7 I.R.B. 538
8918, 2001–4 I.R.B. 372
8919, 2001–6 I.R.B. 505
8920, 2001–8 I.R.B. 654
8921, 2001–7 I.R.B. 532
8922, 2001–6 I.R.B. 508
8923, 2001–6 I.R.B. 485
8924, 2001–6 I.R.B. 489
8925, 2001–6 I.R.B. 496
8926, 2001–6 I.R.B. 492
8928, 2001–8 I.R.B. 685
8930, 2001–5 I.R.B. 433
8931, 2001–7 I.R.B. 542
8935, 2001–8 I.R.B. 702
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2000–27 through
2000–52 is in Internal Revenue Bulletin 2001–1,
dated January 2, 2001.

February 26, 2001iii2001–9 I.R.B.
Finding List of Current Actions on
Previously Published Items
1
Bulletins 2001–1 through 2001–8
Announcement:
98–99
Modified by
Ann. 2001–9, 2001–3 I.R.B. 357
99–79
Superseded by
Ann. 2001–3, 2001–2 I.R.B. 278
2000–97
Corrected by
Ann. 2001–7, 2001–3 I.R.B. 357
Cumulative Bulletin:
1998–2
Corrected by
Ann. 2001–5, 2001–2 I.R.B. 286
Notices:
98–39
Modified by
Notice 2001–9, 2001–4 I.R.B. 375
98–40
Modified by
Notice 2001–9, 2001–4 I.R.B. 375
99–53
Modified and superseded by
Notice 2001–7, 2001–4 I.R.B. 374
2000–21
Superseded by
Notice 2001–1, 2001–2 I.R.B. 261
2000–22
Modified and superseded by
Notice 2001–8, 2001–4 I.R.B. 374
2000–43
Extended by
Notice 2001–13, 2001–6 I.R.B. 514
Proposed Regulations:
EE–130–86
Partially withdrawn by
REG–209461–79, 2001–8 I.R.B. 712
REG–116733–98
Withdrawn by
Ann. 2001–11, 2001–4 I.R.B. 432
Revenue Procedures:
83–87
Superseded by
Rev. Proc. 2001–15, 2001–5 I.R.B. 465
90–18
Amplified and superseded by
Rev. Proc. 2001–18, 2001–8 I.R.B. 708
92–19
Superseded by
Rev. Proc. 2001–15, 2001–5 I.R.B. 465
96–17
Modified by
Rev. Proc. 2001–9, 2001–3 I.R.B. 328
Revenue Procedures–continued:
99–47
Superseded by
Rev. Proc. 2001–16, 2001–4 I.R.B. 376
99–49
Modified and amplified by
Rev. Proc. 2001–10, 2001–2 I.R.B. 272
2000–1
Superseded by
Rev. Proc. 2001–1, 2001–1 I.R.B. 1
2000–2
Superseded by
Rev. Proc. 2001–2, 2001–1 I.R.B. 79
2000–3
Superseded by
Rev. Proc. 2001–3, 2001–1 I.R.B. 111
2000–4
Superseded by
Rev. Proc. 2001–4, 2001–1 I.R.B. 121
2000–5
Superseded by
Rev. Proc. 2001–5, 2001–1 I.R.B. 164
2000–6
Superseded by
Rev. Proc. 2001–6, 2001–1 I.R.B. 194
2000–7
Superseded by
Rev. Proc. 2001–7, 2001–1 I.R.B. 236
2000–8
Superseded by
Rev. Proc. 2001–8, 2001–1 I.R.B. 239
2000–16
Modified and superseded by
Rev. Proc. 2001–17, 2001–7 I.R.B. 589
2000–22
Modified and superseded by
Rev. Proc. 2001–10, 2001–2 I.R.B. 272
2001–13
Clarified by
Notice 2001–12, 2001–3 I.R.B. 328
Revenue Rulings:
64–328
Modified by
Notice 2001–10, 2001–5 I.R.B. 459
66–110
Modified by
Notice 2001–10, 2001–5 I.R.B. 459
Treasury Decisions:
8889
Corrected by
Ann. 2001–14, 2001–2 I.R.B. 286
1
A cumulative list of current actions on previously
published items in Internal Revenue Bulletins
2000–27 through 2000–52 is in Internal Revenue
Bulletin 2001–1, dated January 2, 2001.

INTERNAL REVENUE BULLETIN
The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the
Superintendent of Documents when their subscriptions must be renewed.
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The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the week-
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