INCOME TAX

Rev. Rul. 97–13, page 4.Special use value; farms; interest rates. The 1997interest rates to be used in computing the special usevalue of farm real property for which an election is madeunder section 2032A of the Code are listed for estatesof decedents.

Notice 97–24, page 6.Certain trust arrangements. This notice warns taxpay-ers about “trust” arrangements that purport to reduce oreliminate federal taxes in ways that are not permitted bythe tax law. The notice describes some typical abusivetrust arrangements and provides that, in appropriatecircumstances, taxpayers and/or promoters in thesetrust arrangements may be subject to civil and/orcriminal penalties.

Notice 97–25, page 8.T.D. 8560, 1994–2 C.B. 200; T.D. 8597, 1995–2 C.B.147; and T.D. 8660, 1996–1 C.B. 195, relating to theconsolidated return investment adjustment provisions,intercompany transactions provisions, and the provisionslimiting losses and deductions from transactions be-tween members of a nonconsolidated controlled group,are corrected.

EXEMPT ORGANIZATIONS

Announcement 97–39, page 27.A list is given of organizations now classified as privatefoundations.

ADMINISTRATIVERev. Proc. 97–24, page 10.General rules and specifications for private printingof Forms W–2 and W–3. Specifications are set forth forthe private printing of paper substitutes for tax year1997 Form W–2, Wage and Tax Statement, and FormW–3, Transmittal of Wage and Tax Statements. Rev.Procs. 96–24 and 96–24A superseded.

Announcement 97–40, page 28.T.D. 8699, 1997–6 I.R.B. 4, pertaining to the credit foremployer FICA taxes paid with respect to certain tipsreceived by employees of food or beverage establish-ments, is corrected.

Announcement 97–41, page 28.T.D. 8677, 1996–30 I.R.B. 7, relating to the deductionsand losses of members of a consolidated group; thecarryover and carryback of losses to consolidated andseparate return years; and the built-in deduction rules,is corrected.

Finding Lists begin on page 31.Announcement of Disbarments and Suspensions begins on page 29.

Bulletin No. 1997–16April 21, 1997

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not be reliedupon as authoritative interpretations.

Mission of the Service

The purpose of the Internal Revenue Service is tocollect the proper amount of tax revenue at the leastcost; serve the public by continually improving the

quality of our products and services; and perform in amanner warranting the highest degree of publicconfidence in our integrity, efficiency and fairness.

Statement of Principlesof Internal RevenueTax AdministrationThe function of the Internal Revenue Service is toadminister the Internal Revenue Code. Tax policyfor raising revenue is determined by Congress.

With this in mind, it is the duty of the Service tocarry out that policy by correctly applying the lawsenacted by Congress; to determine the reasonablemeaning of various Code provisions in light of theCongressional purpose in enacting them; and toperform this work in a fair and impartial manner,with neither a government nor a taxpayer point of view.

At the heart of administration is interpretation of theCode. It is the responsibility of each person in theService, charged with the duty of interpreting thelaw, to try to find the true meaning of the statutoryprovision and not to adopt a strained construction inthe belief that he or she is ‘‘protecting the revenue.’’The revenue is properly protected only when we as-certain and apply the true meaning of the statute.

The Service also has the responsibility of applyingand administering the law in a reasonable,practical manner. Issues should only be raised byexamining officers when they have merit, neverarbitrarily or for trading purposes. At the sametime, the examining officer should never hesitateto raise a meritorious issue. It is also importantthat care be exercised not to raise an issue or toask a court to adopt a position inconsistent withan established Service position.

Administration should be both reasonable andvigorous. It should be conducted with as littledelay as possible and with great cour tesy andconsiderateness. It should never try to overreach,and should be reasonable within the bounds of lawand sound administration. It should, however, bevigorous in requiring compliance with law and itshould be relentless in its attack on unreal taxdevices and fraud.

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Introduction

The Internal Revenue Bulletin is the authoritative instru-ment of the Commissioner of Internal Revenue forannouncing official rulings and procedures of the Inter-nal Revenue Service and for publishing Treasury Deci-sions, Executive Orders, Tax Conventions, legislation,court decisions, and other items of general interest. It ispublished weekly and may be obtained from the Superin-tendent of Documents on a subscription basis. Bulletincontents of a permanent nature are consolidated semi-annually into Cumulative Bulletins, which are sold on asingle-copy basis.

It is the policy of the Service to publish in the Bulletin allsubstantive rulings necessary to promote a uniformapplication of the tax laws, including all rulings thatsupersede, revoke, modify, or amend any of thosepreviously published in the Bulletin. All published rulingsapply retroactively unless otherwise indicated. Proce-dures relating solely to matters of internal managementare not published; however, statements of internalpractices and procedures that affect the rights andduties of taxpayers are published.

Revenue rulings represent the conclusions of the Ser-vice on the application of the law to the pivotal factsstated in the revenue ruling. In those based on positionstaken in rulings to taxpayers or technical advice toService field offices, identifying details and informationof a confidential nature are deleted to prevent unwar-ranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do nothave the force and effect of Treasury DepartmentRegulations, but they may be used as precedents.Unpublished rulings will not be relied on, used, or citedas precedents by Service personnel in the disposition ofother cases. In applying published rulings and proce-dures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be consid-ered, and Service personnel and others concerned arecautioned against reaching the same conclusions inother cases unless the facts and circumstances aresubstantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based onprovisions 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, Legislationand Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references tothese subjects are contained in the other Parts andSubparts. Also included in this part are Bank SecrecyAct Administrative Rulings. Bank Secrecy Act Administra-tive Rulings are issued by the Department of theTreasury’s Office of the Assistant Secretary (Enforce-ment).

Part IV.—Items of General Interest.With the exception of the Notice of Proposed Rulemak-ing and the disbarment and suspension list included inthis part, none of these announcements are consoli-dated in the Cumulative Bulletins.

The first Bulletin for each month includes an index forthe matters published during the preceding month.These monthly indexes are cumulated on a quarterly andsemiannual basis, and are published in the first Bulletinof the succeeding quarterly and semi-annual period,respectively.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents U.S. Government Printing Office, Washington, D.C. 20402.

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Part I. Rulings and Decisions Under the Internal Revenue Code of 1986Section 2032A.—Valuation ofCertain Farm, Etc., Real Property26 CFR 20.2032A–4: Method of valuing farm realproperty.

Special use value; farms; interestrates. The 1997 interest rates to be usedin computing the special use value offarm real property for which an electionis made under section 2032A of theCode are listed for estates of decedents.

Rev. Rul. 97–13

This revenue ruling contains a list ofthe average annual effective interestrates on new loans under the FarmCredit Bank system. This revenue rulingalso contains a list of the states withineach Farm Credit Bank District.

Under § 2032A(e)(7)(A)(ii) of the In-ternal Revenue Code, rates on new FarmCredit Bank loans are used in comput-ing the special use value of real prop-erty used as a farm for which anelection is made under § 2032A. Therates in this revenue ruling may be usedby estates that value farmland under§ 2032A as of a date in 1997.Average annual effective interest

rates, calculated in accordance with§ 2032A(e)(7)(A) and § 20.2032A–4(e)of the Estate Tax Regulations, to beused under § 2032A(e)(7)(A)(ii), are setforth in the accompanying Table ofInterest Rates (Table 1). The stateswithin each Farm Credit Bank Districtare set forth in the accompanying Tableof Farm Credit Bank Districts (Table 2).

Rev. Rul. 81–170, 1981–1 C.B. 454,contains an illustrative computation ofan average annual effective interest rate.The rates applicable for valuation in1996 are in Rev. Rul. 96–23, 1996–1C.B. 198. For rate information for yearsprior to 1996, see Rev. Rul. 95–38,1995–1 C.B. 184, and other revenuerulings that are referenced therein.

DRAFTING INFORMATION

The principal author of this revenueruling is Lane Damazo of the Office ofAssistant Chief Counsel (Passthroughsand Special Industries). For further in-formation regarding this revenue ruling,contact Lane Damazo on (202) 622–3090 (not a toll-free call).

REV. RUL. 97–13 TABLE 1

TABLE OF INTEREST RATES(Year of Valuation 1997)

Farm Credit Bank District in Which Property Is Located Interest Rate

Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.88Omaha . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.09Sacramento . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.48St. Paul . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.39Spokane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.27Springfield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.57Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.42Wichita . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.21

REV. RUL. 97–13 TABLE 2

TABLE OF FARM CREDIT BANK DISTRICTS

District States

Columbia . . . . . . . . . . . . . . . . . . . . . . . Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina,Pennsylvania, South Carolina, Virginia, West Virginia.

Omaha . . . . . . . . . . . . . . . . . . . . . . . . . . Iowa, Nebraska, South Dakota, Wyoming.Sacramento . . . . . . . . . . . . . . . . . . . . . . Arizona, California, Hawaii, Nevada, Utah.St. Paul . . . . . . . . . . . . . . . . . . . . . . . . . Arkansas, Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, North Da-

kota, Ohio, Tennessee, Wisconsin.Spokane . . . . . . . . . . . . . . . . . . . . . . . . Alaska, Idaho, Montana, Oregon, Washington.Springfield . . . . . . . . . . . . . . . . . . . . . . Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York,

Rhode Island, Vermont.Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . Alabama, Louisiana, Mississippi, Texas.Wichita . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado, Kansas, New Mexico, Oklahoma.

Section 6011.—GeneralRequirement of Return, State orListPrinting of substitutes for Form W–2, Wage and

Tax Statement, and Form W–3, Transmittals ofIncome and Tax Statements. See Rev. Proc. 97–24,page 10.

Section 6041.—Information atSource26 CFR 1.6041: Return of information as topayments of $600 or more.

Printing of substitutes for Form W–2, Wage andTax Statement, and Form W–3, Transmittal ofIncome and Tax Statements. See Rev. Proc. 97–24,page 10.

26 CFR 1.6041–2: Return of information as topayments to employees.

Printing of substitutes for Form W–2, Wage andTax Statement, and Form W–3, Transmittal ofIncome and Tax Statements. See Rev. Proc. 97–24,page 10.

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Section 6051.—Receipts forEmployees26 CFR 31.6051–1: Statements for employees.

Printing of substitutes for Form W–2, Wage andTax Statement, and Form W–3, Transmittal ofIncome and Tax Statements. See Rev. Proc. 97–24,page 10.

Section 6071.—Time for FilingReturns and Other Documents26 CFR 31.6071(a)–1: Time for filing returns andother documents.

Printing of substitutes for Form W–2, Wage andTax Statement, and Form W–3, Transmittal of

Income and Tax Statements. See Rev. Proc. 97–24,page 10.

Section 6081.—Extension of Timefor Filing Returns26 CFR 31.6081(a)–1: Extension of time for filingreturns.

Printing of substitutes for Form W–2, Wage andTax Statment, and Form W–3, Transmittal ofIncome and Tax Statements. See Rev. Proc. 97–24,page 10.

Section 6091.—Place for FilingReturns or Other DocumentsPrinting of substitutes for Form W–2, Wage and

Tax Statement, and Form W–3, Transmittal ofIncome and Tax Statements. See Rev. Proc. 97–24,page 10.

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Part III. Administrative, Procedural, and MiscellaneousCertain Trust Arrangements

Notice 97–24

This notice is intended to alert tax-payers about certain trust arrangementsthat purport to reduce or eliminate fed-eral taxes in ways that are not permittedby federal tax law. (The notice refers tosuch arrangements as ‘‘abusive trustarrangements.’’ See Section I. ABUSIVETRUST ARRANGEMENTS—IN GEN-ERAL, below.) The notice describessome typical abusive trust arrangements,as well as the tax benefits promised bypromoters, and then explains the correcttax principles that apply to these trustarrangements. Taxpayers should beaware that abusive trust arrangementswill not produce the tax benefits adver-tised by their promoters and that theInternal Revenue Service is actively ex-amining these types of trust arrange-ments as part of the National Compli-ance Strategy, Fiduciary and SpecialProjects. Furthermore, in appropriate cir-cumstances, taxpayers and/or the pro-moters of these trust arrangements maybe subject to civil and/or criminal penal-ties.This notice should not, however, cre-

ate concerns about the legitimate uses oftrusts. For example, trusts are frequentlyused properly in estate planning, tofacilitate the genuine charitable transferof property, and to hold property forminors and incompetents.Under the federal tax laws, trusts

generally are separate entities subject toincome tax (except for certain charitableor pension trusts that are expressly ex-empted by the tax laws and certaingrantor trusts described in sections 671–679 of the Internal Revenue Code).Under these laws and certain court de-veloped doctrines, either the trust, thebeneficiary, or the transferor, as appli-cable, must pay the tax on the incomerealized by the trust including the in-come generated by property held intrust.

I. ABUSIVE TRUST ARRANGE-MENTS—IN GENERAL

Abusive trust arrangements typicallyare promoted by the promise of taxbenefits with no meaningful change inthe taxpayer’s control over or benefitfrom the taxpayer’s income or assets.The promised benefits may include re-duction or elimination of income subjectto tax; deductions for personal expenses

paid by the trust; depreciation deduc-tions of an owner’s personal residenceand furnishings; a stepped-up basis forproperty transferred to the trust; thereduction or elimination of self-employment taxes; and the reduction orelimination of gift and estate taxes.These promised benefits are inconsistentwith the tax rules applicable to theabusive trust arrangements, as describedbelow.Abusive trust arrangements often use

trusts to hide the true ownership ofassets and income or to disguise thesubstance of transactions. These arrange-ments frequently involve more than onetrust, each holding different assets of thetaxpayer (for example, the taxpayer’sbusiness, business equipment, home, au-tomobile, etc.), as well as interests inother trusts. Funds may flow from onetrust to another trust by way of rentalagreements, fees for services, purchaseand sale agreements, and distributions.Some trusts purport to involve charitablepurposes. In some situations, one ormore foreign trusts also may be part ofthe arrangement.

II. EXAMPLES OF ABUSIVE TRUSTARRANGEMENTS

Described below are five examples ofabusive trust arrangements that havecome to the attention of the InternalRevenue Service. An abusive trust ar-rangement may involve some or all ofthe trusts described below. The type oftrust arrangement selected is dependenton the particular tax benefit the arrange-ment purports to achieve. In each of thetrusts described below, the originalowner of the assets that are nominallysubject to the trust effectively retainsauthority to cause the financial benefitsof the trust to be directly or indirectlyreturned or made available to the owner.For example, the trustee may be thepromoter, or a relative or friend of theowner who simply carries out the direc-tions of the owner whether or notpermitted by the terms of the trust.Often, the trustee gives the ownerchecks that are pre-signed by the trustee,checks that are accompanied by a rubberstamp of the trustee’s signature, a creditcard or a debit card with the intention ofpermitting the owner to obtain cashfrom the trust or otherwise to use theassets of the trust for the owner’s ben-efit.1. The Business Trust.The owner of

a business transfers the business to a

trust (sometimes described as an unin-corporated business trust) in exchangefor units or certificates of beneficialinterest, sometimes described as units ofbeneficial interest or UBI’s (trust units).The business trust makes payments tothe trust unit holders or to other trustscreated by the owner (characterized ei-ther as deductible business expenses oras deductible distributions) that purportto reduce the taxable income of thebusiness trust to the point where little orno tax is due from the business trust. Inaddition, the owner claims the arrange-ment reduces or eliminates the owner’sself-employment taxes on the theory thatthe owner is receiving reduced or noincome from the operation of the busi-ness. In some cases, the trust units aresupposed to be canceled at death or‘‘sold’’ at a nominal price to the owner’schildren, leading to the contention bypromoters that there is no estate taxliability.2. The Equipment or Service Trust.

The equipment trust is formed to holdequipment that is rented or leased to thebusiness trust, often at inflated rates.The service trust is formed to provideservices to the business trust, often forinflated fees. Under these abusive trustarrangements, the business trust maypurport to reduce its income by makingallegedly deductible payments to theequipment or service trust. Further, as tothe equipment trust, the equipmentowner may claim that the transfer ofequipment to the equipment trust inexchange for the trust units is a taxableexchange. The trust takes the positionthat the trust has ‘‘purchased’’ the equip-ment with a known value (its fair mar-ket value) and that the value is the taxbasis of the equipment for purposes ofclaiming depreciation deductions. Theowner, on the other hand, takes theinconsistent position that the value ofthe trust units received cannot be deter-mined, resulting in no taxable gain tothe owner on the exchange. The equip-ment or service trust also may attemptto reduce or eliminate its income bydistributions to other trusts.3. The Family Residence Trust.The

owner of the family residence transfersthe residence, including its furnishings,to a trust. The parties claim inconsistenttax treatment for the trust and the owner(similar to the equipment trust). Thetrust claims the exchange results in astepped-up basis for the property, whilethe owner reports no gain. The trust

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claims to be in the rental business andpurports to rent the residence back tothe owner; however, in most cases, littleor no rent is actually paid. Rather, theowner contends that the owner andfamily members are caretakers or pro-vide services to the trust and, therefore,live in the residence for the benefit ofthe trust. Under some arrangements, thefamily residence trust receives fundsfrom other trusts (such as a businesstrust) which are treated as the income ofthe trust. In order to reduce the taxwhich might be due with respect to suchincome (and any income from rent actu-ally paid by the owner), the trust mayattempt to deduct depreciation and theexpenses of maintaining and operatingthe residence.4. The Charitable Trust.The owner

transfers assets to a purported charitabletrust and claims either that the paymentsto the trust are deductible or that pay-ments made by the trust are deductiblecharitable contributions. Payments aremade to charitable organizations; how-ever, in fact, the payments are princi-pally for the personal educational, liv-ing, or recreational expenses of theowner or the owner’s family. For ex-ample, the trust may pay for the collegetuition of a child of the owner.5. The Final Trust. In some multi-

trust arrangements, the U.S. owner ofone or more abusive trusts establishes atrust (the ‘‘final trust’’) that holds trustunits of the owner’s other trusts and isthe final distributee of their income. Afinal trust often is formed in a foreigncountry that will impose little or no taxon the trust. In some arrangements,more than one foreign trust is used, withthe cash flowing from one trust toanother until the cash is ultimately dis-tributed or made available to the U.S.owner, purportedly tax free.

III. LEGAL PRINCIPLES APPLI-CABLE TO TRUSTS

As noted above, when trusts are usedfor legitimate business, family or estateplanning purposes, either the trust, thetrust beneficiary, or the transferor to thetrust, as appropriate under the tax laws,will pay the tax on the income gener-ated by the trust property. When used inaccordance with the tax laws, trusts willnot transform a taxpayer’s personal, liv-ing or educational expenses into deduct-ible items, and will not seek to avoidtax liability by ignoring either the trueownership of income and assets or thetrue substance of transactions. Accord-ingly, the tax results that are promised

by the promoters of abusive trust ar-rangements are not allowable under fed-eral tax law. Contrary to promises madein promotional materials, several well-established tax principles control theproper tax treatment of these abusivetrust arrangements.1. Substance—not form—controls

taxation. The Supreme Court of theUnited States has consistently stated thatthe substance rather than the form of thetransaction is controlling for tax pur-poses. See, for example,Gregory v.Helvering,293 U.S. 465 (1935), XIV–1C.B. 193; Helvering v. Clifford, 309U.S. 331 (1940), 1940–1 C.B. 105.Under this doctrine, the abusive trustarrangements may be viewed as shamtransactions, and the IRS may ignore thetrust and its transactions for federal taxpurposes. SeeMarkosian v. Commis-sioner, 73 T.C. 1235 (1980) (holdingthat the trust was a sham because theparties did not comply with the terms ofthe trust and the supporting documentsand the relationship of the grantors tothe property transferred did not differ inany material aspect after the creation ofthe trust);Zmuda v. Commissioner,731F.2d 1417 (9th Cir. 1984). Accordingly,the income and assets of the businesstrust, the equipment in the equipmenttrust, the residence in the family resi-dence trust, and the assets in the foreigntrust would all be treated as belongingdirectly to the owner.2. Grantors may be treated as owners

of trusts.The grantor trust rules providethat if the owner of property transferredto a trust retains an economic interest in,or control over, the trust, the owner istreated for income tax purposes as theowner of the trust property, and alltransactions by the trust are treated astransactions of the owner. Sections671—677. In addition, a U.S. personwho directly or indirectly transfers prop-erty to a foreign trust is treated as theowner of that property if there is a U.S.beneficiary of the trust. Section 679.This means that all expenses and in-come of the trust would belong to andmust be reported by the owner, and taxdeductions and losses arising from trans-actions between the owner and the trustwould be ignored. Furthermore, therewould be no taxable ‘‘exchange’’ ofproperty with the trust, and the tax basisof property transferred to the trustwould not be stepped-up for deprecia-tion purposes. See Rev. Rul. 85–13,1985–1 C.B. 184.3. Taxation of Non-Grantor Trusts.If

the trust is not a sham and is not a

grantor trust, the trust is taxable on itsincome, reduced by amounts distributedto beneficiaries. The trust must obtain ataxpayer identification number and fileannual returns reporting its income. Thetrust must report distributions to benefi-ciaries on a Form K–1, and the benefi-ciary must include the distributed in-come on the beneficiary’s tax return.Sections 641, 651, 652, 661 and 662.4. Transfers to trusts may be subject

to estate and gift taxes.Transfers to atrust may be recognized as completedgifts for federal gift tax purposes. Fur-ther, whether or not the gift tax applies,if the owner retains until the owner’sdeath the use of, enjoyment of, orincome from the property placed in atrust, the property will be subject tofederal estate tax when the transferordies. Section 2036(a).5. Personal expenses are generally

not deductible.Personal expenses suchas those for home maintenance, educa-tion, and personal travel are not deduct-ible unless expressly authorized by thetax laws. See section 262. The courtshave consistently held that non-deductible personal expenses cannot betransformed into deductible expenses bythe use of trusts. Furthermore, the costsof creating these trusts are not deduct-ible. See, for example,Schulz v. Com-missioner,686 F.2d 490 (7th Cir. 1982);Neely v. United States,775 F.2d 1092(9th Cir. 1985); andZmuda.6. A genuine charity must benefit in

order to claim a valid charitable deduc-tion. Charitable trusts that are exemptfrom tax are carefully defined in the taxlaw. Arrangements are not exempt chari-table trusts if they do not satisfy therequirements of the tax law, includingthe requirement that their true purpose isto benefit charity. Furthermore, sup-posed charitable payments made by atrust are not deductible charitable contri-butions where the payments are reallyfor the benefit of the owner or theowner’s family members. See, for ex-ample, Fausner v. Commissioner,55T.C. 620 (1971).7. Special rules apply to foreign

trusts. If an arrangement involves aforeign trust, taxpayers should be awarethat a number of special provisionsapply to foreign trusts with U.S. grant-ors or U.S. beneficiaries, including sev-eral provisions added in 1996. For ex-ample, a U.S. person that fails to reporta transfer of property to a foreign trustor the receipt of a distribution from aforeign trust is subject to a tax penaltyequal to 35 percent of the gross value of

7

the transaction. Other examples of theseprovisions are the application of U.S.withholding taxes to payments to for-eign trusts and the application of U.S.excise taxes to transfers of appreciatedproperty to foreign trusts. See sections6048, 6677, 1441, and 1491.8. Civil and/or criminal penalties

may apply.The participants in and pro-moters of abusive trust arrangementsmay be subject to civil and/or criminalpenalties in appropriate cases. See, forexample,United States v. Buttorff,761F.2d 1056 (5th Cir. 1985);United Statesv. Krall, 835 F.2d 711 (8th Cir. 1987);ZmudaandNeely.

IV. IRS ENFORCEMENT STRATEGYFOR ABUSIVE TRUSTS

The Internal Revenue Service hasundertaken a nationally coordinated en-forcement initiative to address abusivetrust schemes—the National ComplianceStrategy, Fiduciary and Special Projects.This initiative involves Service person-nel from the Assistant Commissioner(Examination), Assistant Commissioner(Criminal Investigation), and the Officeof Chief Counsel.As part of this strategy, the Service

seeks to encourage voluntary compli-ance with the tax law. Accordingly,taxpayers who have participated in abu-sive trust arrangements are encouragedto file correct tax returns for 1996, aswell as amended tax returns for prioryears, consistent with the explanation ofthe law set forth in this notice.For information regarding issues ad-

dressed in this notice, taxpayers maycall (202) 622–4512 (not a toll-freenumber).

Consolidated Returns; Consolidatedand Controlled Groups; Correction

Notice 97–25

AGENCY: Internal Revenue Service,Treasury.

ACTION: Correcting Amendments.

SUMMARY: This document containstechnical corrections to final regulations[T.D. 8560[1994–2 C.B. 200]; T.D.8597[1995–2 C.B. 147]; T.D. 8660[1996–1 C.B. 195]] which were pub-lished in theFederal Registeron Mon-day, August 15, 1994 (59 FR 41666);Tuesday, July 18, 1995 (60 FR 36671);and Thursday, March 14, 1996 (61 FR10447); respectively. The final regula-tions amend the consolidated return in-vestment adjustment provisions,

intercompany transaction provisions andthe provisions limiting losses and deduc-tions from transactions between mem-bers of a nonconsolidated controlledgroup.

DATES: The correcting amendments af-fecting §§ 1.267(f)–1, 1.1502–13(f)(2)-(ii), (g)(5), (l)(1), 1.1502–20, 1.1502–32(b), and 1.1502–80(b) are effectiveJuly 18, 1995. The correcting amemd-ments affecting §§ 1.1502–11, 1.1502–19, 1.1502–32(f), 1.1502–43, 1.1502–76and 1.1502–80(d)(1) are effective Janu-ary 1, 1995. The correcting amendmentsaffecting § 1.1502–13(f)(6) are effectiveMarch 14, 1996. For dates of applicabil-ity see §§ 1.267(f)–1(l), § 1.1502–11(b)(5), 1.1502–13(l)(1), 1.1502–13(f)(6)(v), 1.1502–19(h), 1.1502–32(h),1.1502–76(b)(5), 1.1502–80(d), andother relevant provisions.

FOR FURTHER INFORMATION CON-TACT: William Barry of the Office ofAssistant Chief Counsel (Corporate),(202) 622–7770 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final regulations that are thesubject of these correcting amendmentsare under sections 267 and 1502 of theInternal Revenue Code.

Need for Correction

As published, the final regulationscontain errors and omissions which mayprove to be misleading and are in needof clarification.

* * * * *Accordingly, 26 CFR Part 1 is cor-

rected by making the following correct-ing amendments:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forPart 1 continues to read in part asfollows:Authority: 26 U.S.C. 7805 * * *

§ 1.267(f)–1 [Corrected]

Par. 2. Section 1.267(f)–1 is amendedas follows:1. In paragraph (c)(1)(iii), the first

sentence is revised.2. Paragraph (l)(2) is revised.The revisions read as follows:

§ 1.267(f)–1 Controlled groups.

* * * * *(c) * * * (1) * * *

(iii) * * * To the extent S’s loss ordeduction from an intercompany sale ofproperty is taken into account under thissection as a result of B’s transfer of theproperty to a nonmember that is aperson related to any member, immedi-ately after the transfer, under sections267(b) or 707(b), or as a result of S orB becoming a nonmember that is relatedto any member under section 267(b), theloss or deduction is taken into accountbut allowed only to the extent of anyincome or gain taken into account as aresult of the transfer. * * *

* * * * *(l) * * *(2) Avoidance transactions.This

paragraph (l)(2) applies if a transactionis engaged in or structured on or afterApril 8, 1994, with a principal purposeto avoid the rules of this section (andinstead to apply prior law). If thisparagraph (l)(2) applies, appropriate ad-justments must be made in years begin-ning on or after July 12, 1995, toprevent the avoidance, duplication,omission, or elimination of any item (ortax liability), or any other inconsistencywith the rules of this section.

* * * * *

§ 1.1502–11 [Corrected]

Par. 3. Section 1.1502–11 is amendedby revising paragraph (b)(2)(iii), Ex-ample 3. (e) to read as follows:§ 1.1502–11 Consolidated taxable in-come.

* * * * *(b) * * *(2) * * *(iii) * * *Example 3.* * *(e) Under paragraph (b)(2)(ii) of this section,

S’s $30 of loss limited under this paragraph (b) istreated as a separate net operating loss.

* * * * *

§ 1.1502–13 [Corrected]

Par. 4. Section 1.1502–13 is amendedas follows:1. In paragraph (f)(2)(ii), a sentence

is added before the last sentence of theparagraph.2. In paragraph (f)(6) introductory

text, the last sentence is revised.3. In paragraph (g)(5),Example 5.(c),

the tenth sentence is revised.4. In paragraph (l)(1) the third,

fourth, and fifth sentences are revised.The addition and revisions read as

follows:

8

§ 1.1502–13 Intercompany transactions.

* * * * *(f) * * *(2) * * *(ii) * * * B’s dividend received de-

duction under section 243(a)(3) is deter-mined without regard to any intercom-pany distributions under this paragraph(f)(2) to the extent they are not includedin gross income. * * *

* * * * *(6) * * * For this purpose, P stock is

any stock of the common parent held(directly or indirectly) by another mem-ber or any stock of a member (theissuer) that was the common parent ifthe stock was held (directly or indi-rectly) by another member while theissuer was the common parent.

* * * * *(g) * * *(5) * * *Example 5.* * *(c) * * * Under § 1.446–3(f), the deemed $100

up front payment by M1 to M2 is taken intoaccount over the term of the new contract in amanner reflecting the economic substance of thecontract (for example, allocating the payment inaccordance with the forward rates of a series ofcash-settled forward contracts that reflect thespecified index and the $1,000 notional principalamount).* * *

* * * * *(l) * * * (1) * * * For example, S’s

and B’s items from S’s sale of propertyto B which occurs in a consolidatedreturn year beginning before July 12,1995, are taken into account under priorlaw, even though B may dispose of theproperty in a consolidated return yearbeginning on or after July 12, 1995.Similarly, an intercompany distributionto which a shareholder becomes entitledin a consolidated return year beginningbefore July 12, 1995, but which isdistributed in a consolidated return yearbeginning on or after that date is takeninto account under prior law (generallywhen distributed), because this sectiongenerally takes dividends into accountwhen the shareholder becomes entitledto them but this section does not applyat that time. If application of prior lawto S’s deferred gain or loss from adeferred intercompany transaction (asdefined under prior law) occurring in aconsolidated return year beginning priorto July 12, 1995, would be affected byan intercompany transaction (as definedunder this section) occurring in a con-solidated return year beginning on orafter July 12, 1995, S’s deferred gain orloss continues to be taken into accountas provided under prior law, and the

items from the subsequent intercompanytransaction are taken into account underthis section. * * *

* * * * *

§ 1.1502–19 [Corrected]

Par. 5. Section 1.1502–19 is amendedas follows:1. In paragraph (c)(1)(iii)(A), the last

sentence is revised.2. Paragraph (g) is amended by:a. Revising the first sentence of the

introductory text.b. Revising the fourth and fifth sen-

tences inExample 1.(d).c. Revising the first sentence inEx-

ample 4.(b).d. Revising the first sentence inEx-

ample 6.(b).The revisions read as follows:

§ 1.1502–19 Excess loss accounts.

* * * * *(c) * * *(1) * * *(iii) * * *(A) * * * An asset of S is not

considered to be disposed of or aban-doned to the extent the disposition is incomplete liquidation of S or is in ex-change for consideration (other thanrelief from indebtedness);

* * * * *(g) Examples. For purposes of the

examples in this section, unless other-wise stated, P owns all 100 shares of theonly class of S’s stock and S owns all100 shares of the only class of T’sstock, the stock is owned for the entireyear, T owns no stock of lower-tiermembers, the tax year of all persons isthe calendar year, all persons use theaccrual method of accounting, the factsset forth the only corporate activity, alltransactions are between unrelated per-sons, and tax liabilities are disregarded.* * *Example 1.* * *(d) * * * Under section 301(d), P’s basis in the

T stock is $60. Under § 1.1502–13, and paragraph(b)(2) of this section, S’s $160 gain from thedistribution is deferred and taken into account inYear 5 as a result of P’s sale of the T stock. * * *

* * * * *Example 4.* * *(b) Analysis. Under paragraph (c)(2) of this

section, S is treated as disposing of each of itsshares of T’s stock immediately before T becomesa nonmember. * * *

* * * * *Example 6.* * *(b) Analysis.Under paragraph (c)(1)(iii)(A) of

this section, P’s excess loss account on each of itsshares of S’s stock ordinarily is taken into accountat the time substantially all of S’s assets are

treated as disposed of, abandoned, or destroyed forFederal income tax purposes. * * *

* * * * *

§ 1.1502–20 [Corrected]

Par. 6. Section 1.1502–20 is amendedas follows:1. In paragraph (b)(6),Example 5.

(iii) is revised.2. In paragraph (e)(3),Example 1.(i),

the third sentence is revised.3. In paragraph (e)(3),Example 1.(ii)

is revised.The revisions read as follows:

§ 1.1502–20 Disposition or deconsoli-dation of subsidiary stock.

* * * * *(b) * * *(6) * * *Example 5. * * *(iii) T’s issuance of additional shares to the

public results in S’s intercompany loss being takeninto account under the acceleration rule of§ 1.1502–13(d) because there is no differencebetween P’s $100 basis in the T stock and the$100 basis the T stock would have had if P and Shad been divisions of a single corporation. S’s losstaken into account is disallowed under paragraph(a)(1) of this section.

* * * * *(e) * * *(3) * * *Example 1. * * * (i) * * * With the view

described in paragraph (e)(1) of this section, Ptransfers land with a value of $100 and a basis of$100 to T in exchange for preferred stock with a$200 redemption price and liquidation preference.* * *(ii) Under section 305, the redemption premium

is treated as a distribution of property to whichsection 301 and § 1.1502–13(f)(2) apply. Under§§ 1.1502–13 and 1.1502–32, P’s aggregate basisin the preferred and common stock is unaffectedby the deemed distributions.

* * * * *

§ 1.1502–32 [Corrected]

Par. 7. Section 1.1502–32 is amendedas follows:1. In paragraph (b)(3)(ii)(A), the sec-

ond sentence is revised.2. In paragraph (b)(3)(v), the last sen-

tence is revised.3. In paragraph (b)(5)(ii),Example

5.(c), the second sentence is revised.4. In paragraph (b)(5),Example 6.(b)

is revised.5. In paragraph (f), a sentence is

added after the second sentence.The addition and revisions read as

follows:

§ 1.1502–32 Investment adjustments.

* * * * *(b) * * *(3) * * *

9

(ii) * * * (A) * * * For example, S’sdividend income to which § 1.1502–13(f)(2)(ii) applies, and its interest ex-cluded from gross income under section103, are treated as tax-exempt income.* * *

* * * * *(v) * * * See § 1.1502–13(f)(2)(iv)

for taking into account distributions towhich section 301 applies (but not otherdistributions treated as dividends) underthe entitlement rule.

* * * * *(5) * * *(ii) * * *Example 5.* * *(c) * * * Under § 1.1502–13(f)(2)(iv), S is

treated as making a $70 distribution to P at thetime P becomes entitled to the distribution. * * *Example 6.* * *(b) Analysis.Under section 358, P’s basis in the

S stock is increased by its basis in the T stock.Under § 1.1502–13(f)(3) the money received istreated as being taken into account immediatelyafter the transaction. Thus, the $10 is treated as adividend distribution under section 301 and underparagraph (b)(3)(v) of this section, the $10 is adistribution to which paragraph (b)(2)(iv) of thissection applies. Accordingly, P’s basis in the Sstock is $160 immediately after the merger, whichis then decreased by the $10 distribution takeninto account immediately after the transaction,resulting in a basis of $150.

* * * * *(f) * * * For example, if T merges

into S, S is treated, as the context mayrequire, as a successor to T and asbecoming a member of the group. * * *

* * * * *

§ 1.1502–43 [Corrected]

Par. 8. Section 1.1502–43 is amendedby revising paragraph (a)(3)(iii) to readas follows:

§ 1.1502–43 Consolidated accumulatedearnings tax.

(a) * * *(3) * * *(iii) Earnings and profits resulting

from the disposition of a member’sstock are determined without regard tothe stock basis adjustments under§§ 1.1502–32 and 1.1502–33(c)(1).

* * * * *

§ 1.1502–76 [Corrected]

Par. 9. Section 1.1502–76 is amendedby revising paragraph (b)(4),Example1.(a) and the first sentence ofExample1.(c) to read as follows:

§ 1.1502–76 Taxable year of membersof group.

* * * * *(b) * * *(4) * * *Example 1. Items allocated between consoli-

dated and separate returns.(a) Facts.P and S arethe only members of the P group. P sells all of S’sstock to individual A on June 30, and therefore Sbecomes a nonmember on July 1 of Year 2.

* * * * *(c) Acquisition of another subsidiary before end

of tax year.The facts are the same as in paragraph(a) of this Example 1, except that on July 31 Pacquires all the stock of T (which filed a separatereturn for its year ending on November 30 of Year1) and T therefore becomes a member on August1 of Year 2. * * *

* * * * *

§ 1.1502–80 [Corrected]

Par. 10. Section 1.1502–80 isamended as follows:1. Paragraph (b) is revised.2. In paragraph (d)(1), a sentence is

added to the end of the paragraph.The addition and revision reads as

follows:

§ 1.1502–80 Applicability of other pro-visions of law.

* * * * *(b) Non-applicability of section 304.

Section 304 does not apply to anyacquisition of stock of a corporation inan intercompany transaction or to anyintercompany item from such transactionoccurring on or after July 24, 1991.

* * * * *(d) * * * (1) * * * For purposes of

this paragraph (d), any reference to atransferor or transferee includes, as thecontext may require, a reference to asuccessor or predecessor.

* * * * *

Cynthia E. Grigsby,Chief, Regulations Unit,

Assistant Chief Counsel (Corporate).

(Filed by the Office of the Federal Register onMarch 13, 1997, 8:45 a.m., and published in theissue of the Federal Register for March 14, 1997,62 F.R. 12096)

General Rules for Filing andSpecifications for the PrivatePrinting of Substitute Forms W–2and W–326 CFR 601.602: Forms and instructions. (AlsoPart I, Sections 6011, 6041, 6051, 6071, 6081,6091; 1.6041–1, 1.6041–2, 31.6051–1, 31.6051–2,31.6071(a)–1, 31.6081(a)–1.)

Rev. Proc. 97–24

PART A. GENERAL

SECTION 1. PURPOSE

.01 The purpose of this revenue pro-cedure is to provide the general rules forfiling and to state the requirements ofthe Internal Revenue Service (IRS) andthe Social Security Administration(SSA) for reproducing paper substitutesfor Form W–2, Wage and Tax State-ment, and Form W–3, Transmittal ofWage and Tax Statements, for amountspaid during the 1997 calendar year. Theinformation reported on Forms W–2 andW–3 is required to establish tax liabilityfor employees and their eligibility forSocial Security and Medicare benefits..02 Forms W–2 and W–3 have only

minor changes for 1997. Please see‘‘Nature of Changes’’ (Section 2, below)and the exhibits at the end of thisrevenue procedure for changes to theForm W–2 and W–3..03 For the purpose of this revenue

procedure, a substitute form is one thatis not printed by IRS.A substituteForm W–2 or W–3 MUST conform tothe specifications in this revenue pro-cedure to be acceptable to the IRS.Preparers should also refer to the sepa-rate instructions for Forms W–2 and theinstructions on Form W–3 for details onhow to complete these forms. See PartC, Sec. 4.01, for information on order-ing the official IRS forms and instruc-tions. See Part B, Sec. 2, for require-ments for substitute forms furnished toemployees..04 IRS has instituted a centralized

call site to answer questions related toinformation returns (Forms W–2, W–3,1099, etc.). The call-site phone numberis (304)263–8700(not a toll-free num-ber). The number for Telecommunica-tion Device for the Deaf (TDD) is(304)267–3367 (not a toll-free number)..05 IRS has established a personal

computer based Information ReportingProgram Bulletin Board System (IRP–BBS) at the IRS Martinsburg Comput-ing Center (IRS/MCC). This system pro-vides access to the forms andpublications relating to information re-turns, news of the latest changes, theability to receive answers to specificquestions, access to shareware, andother features. The IRP–BBS is avail-able for public use and can be reachedby dialing (304)264–7070(not a toll-free number). The IRP–BBS is compat-ible with most modems. For more infor-

10

mation concerning this system, call IRS/MCC at (304)263–8700(not a toll-freenumber)..06 Employers are reminded that un-

der Section 6722 of the Internal Rev-enue Code (IRC) they can be assessed apenalty of $50 per Form W–2 that is notfurnished to an employee on a formacceptable to the IRS (up to $100,000).To be acceptable to IRS, the Form W–2must be either the ‘‘official’’ form or asubstitute form with the core data placedexactly as specified in Part B., Section2.04 of this Revenue Procedure. No IRSoffice is authorized to allow deviationsfrom this Revenue Procedure..07 This revenue procedure super-

sedes Rev. Procs. 96–24 and 9624A,1996–5 I.R.B., dated January 29, 1996,and 1996–15 I.R.B., dated April 8, 1996(Reprinted as Publication 1141, Revised4–96).

SEC. 2. NATURE OF CHANGES

.01 The text and exhibits were up-dated for tax year 1997..02 Only 7 inch width Forms W–2

and W–3 are acceptable for SSA pro-cessing. The exhibits for the printing of7.5 and 8 inch width Forms W–2 andW–3 have been removed because 7.5and 8 inch forms cannot be put throughSSA scanning equipment. Keying fromthe paper documents will be necessaryfor any 7.5 and 8 inch forms submittedto SSA..03 Information has been added

that will require businesses terminat-ing operations to give their employeesForm W–2 when the employer filesthe final Form 941, Employer’s Quar-terly Federal Tax Return. This alsochanges the filing date Form W–2must be sent to SSA. See Part A,Section 3.06 below for new informa-tion..04 The Void Box on Form W–2,

Copy A, was enlarged and set with boldrules. This was requested by SSA tobring more attention to voided forms sovoid totals are not included in subtotalsand total on Forms W–2 and W–3..05 Form W–2, Box 13, added codes

R, S, and T for medical savings,SIMPLE retirement account, andadoption assistance payment. Moredetails about these new codes can befound beginning in Part B, Sec.1.04.16 below..06 New paragraph was added to the

paperwork reduction act notice at thedirection of OMB.

.07 Added information stating House-hold Employers with only one house-hold employee must file Form W–3with Form W–2. This is based on anagreement between SSA and IRS. SeePart B, Section 1.10 below for newrequirement..08 Form W–3, boxes 13 and 14, and

their related instructions have been de-leted. SSA says they no longer need thisinformation. See Part A, Section 4.04..09 Changed the instructions for sub-

stitute forms W–2 to require that em-ployers may provide multiple occur-rences of box 13 but the boxes shoulduse the same codes as those assigned byIRS. See Part B, Section 2.04.14 belowfor new information..10 Provided examples of the various

types of information that should go inbox 14, Form W–2. See Part B, Section2.04.19 for details..11 The section titled ‘‘Where to File’’

in the general instructions on the em-ployer’s copy of the official Form W–3must be printed in its entirety on allsubstitute Forms W–3..12 The tax year (1997) must be

printed in non-reflective black ink on allcopies of Form W–2 and Form W–3using 24 pt OCR–A font. The formsidentification numbers, e.g., 22222 or33333, at the top of the forms must beprinted in non-reflective black ink. It isimperative that SSA’s scanning equip-ment be able to recognize the formnumber so that, for example, a FormW–3 is recognized and is not scanned orkeyed as a Form W–2. The form num-ber ( W–2 and W–3), and the signatureline information on Form W–3, must beprinted in non-reflective black ink. Theword ‘‘Form’’ as well as the formtitle(s), e.g., Wage and Tax Statementand Transmittal of Wage and Tax State-ments, should be printed in red OCRdrop-out ink..13 The correct scanable image depth

of Form W–2, Copy A, must be 4.833inches, instead of 5.5 inches as previ-ously stated. The correct scannable im-age depth of Form W–3 on a page mustbe 4.167 inches, and not 4.4 inches aspreviously stated. See exhibits A and B..14 The Catalog Number, shown on

the 1997 Form W–2 as ‘‘Cat. No.10134D’’, and the Catalog Numbershown on the 1996 Form W–3 as No.10159Y, is used for IRS distributionpurposes and should not be printed onsubstitute Forms W–3 or W–2 (Copy Aor employee copies)..15 Added information regarding ex-

tensions of time to file for more than 50

employers. See Part A, Section 3.08, forthe new information..16 The zip code for P.O. Box number

reserved for the Information ReturnsMagnetic Media Reporting Program haschanged. See Part A, Section 3.01.2, forthe new zip code..17 The Earned Income Credit notifi-

cation to employees has been removedfrom the back of Copy C, and must nowbe printed on the back of Copy B, FormW–2..18 Added information on how forms

can be ordered through computer on-lineservices..19 Various editorial changes were

made.

SEC. 3. GENERAL RULES FORFILING FORMS W–2

.01 Employers MUST use magneticmedia for filing with SSA if they pre-pare and file 250 or more 1997 FormsW–2 (Copy A). This requirement appliesunless:1. The employer can establish that

filing on magnetic media will result inundue hardship, AND2. The employer is granted a waiver

of the requirement by IRS.To request a waiver of the magnetic

media filing requirement, for the currenttax year only, submit Form 8508,Re-quest for Waiver From Filing Informa-tion Returns on Magnetic Media,to:If by Postal Service:

Internal Revenue ServiceMartinsburg Computing CenterP.O. Box 1359Martinsburg, WV25402–1359

Or, if by truck or air freight:

IRS—Martinsburg Computing CenterMagnetic Media ReportingRoute 9 and Needy RoadMartinsburg, WV 25401.

Forms may also be FAXED to theIRS/MCC at (304) 264–5602.Form 8508 may be obtained through

electronic options on the Internet athttp://www.irs.ustreas.gov, or by calling1–800–829–3676. Form 8508 also maybe obtained directly from the IRSMartinsburg Computing Center (IRS/MCC) at the above address or by calling(304)263–8700 (not a toll-free number).The number for Telecommunication De-vice for the Deaf (TDD) is (304)267–3367 (not a toll-free number). It isrecommended that completed requestsfor waivers (Form 8508) be submitted atleast 45 days before but no later thanthe due date of the return (see Sec. 3.06,

11

below). The requestor will receive anapproval or denial letter from IRS, butmust allow at least30 days for IRS torespond. If you have any questionsconcerning Form 8508, contact IRS/MCC at the address or phone numbershown above. Employers who do notcomply with the magnetic media filingrequirements for Form W–2 and whoare not granted a waiver may be subjectto certain penalties. Since many statesand local governments accept FormW–2 data on magnetic media, savingsmay be obtained if magnetic media isused for filing with both SSA and stateor local governments. In many in-stances, the state or local government iswilling to accept the data format specifi-cations set out in SSA’s Technical Infor-mation Bulletin (TIB) No. 4, MagneticMedia Reporting. You must contact eachindividual state or local taxing agency toreceive approval and make arrangementsto file on magnetic media.EMPLOYERS WHO FILE FORM

W–2 INFORMATION ON MAGNETICMEDIA WITH SSA MUST NOT SENDTHE SAME DATA TO SSA ON PAPERFORMS W–2. This would result induplicate reporting and may subject thefiler to an unnecessary contact by theIRS..02 TIB–4, Magnetic Media Report-

ing, Submitting Annual W–2 Copy AInformation to the Social Security Ad-ministration, (SSA Pub. No. 42–007,revisedOct., 1996) contains the specifi-cations and procedures for filing FormW–2 information on magnetic mediawith SSA. Specifications for both tapeand diskette reporting for Forms W–2are included in the TIB–4..03 TIB–4 may be obtained by writ-

ing to:Social Security AdministrationOCRO, DEAAttn: Resubmittal Unit300 North Greene StreetBaltimore, MD 21201.

Employers may call their local SSAMagnetic Media Coordinator (MMC) toobtain the TIB–4 (see list of MagneticMedia Coordinators’ telephone numbersin the Appendix). The TIB–4 is also onthe SSA Annual Wage Reporting BulletinBoard System (AWRBBS). The numberfor the AWRBBS is (410)965–1133 (nota toll-free number). Employers usingmagnetic media are cautioned to obtainthe most recent revision of the TIB–4and supplementsdue to possible changesin the specifications and procedures..04 Employers not using magnetic

media must file a paper Copy A of

Form W–2 with SSA on either the IRSprinted official form or a privatelyprinted substitute paper form that ex-actly meets the specifications shown inParts B and C..05 Employers can design their own

statements to give to employees. Thisapplies to both employers who file withSSA either on magnetic media or paperForms W–2, Copy A. Employee state-ments designed by employers must com-ply with the requirements shown inParts B and C, below.NOTE: Copy A must not be filed onpaper with SSA when the same FormW–2 information is filed on magneticmedia. Therefore, magnetic media fil-ers who use the official IRS printedform or any other pre-printed formare advised not to print Copy A, or todiscard a printed Copy A, to preventduplicate information from being sub-mitted to SSA..06 Beginning January 1, 1997, if

you are terminating your business,you must provide your employeeswith Forms W–2 on or before the duedate of the business filing its finalForm 941. Employers must also fileForms W–2 and W–3 with SSA on orbefore the last day of the monthfollowing the due date of the finalForm 941. See Rev. Proc. 96–57, Au-tomatic Extensions for Forms W–2,Internal Revenue Bulletin 1996–53dated 12/30/96, for more information.Note: Use of a reporting agent or

other third-party payroll service pro-vider does not relieve an employer ofthe responsibility to ensure that taxand information returns are sent outand/or filed correctly and on time..07 1997 Forms W–2, whether filed

on magnetic media or paper, must besubmitted to SSA on or beforeMarch2, 1998. In addition, the employee cop-ies must be furnished to the employeeon or before January 31, 1998. If em-ployment ended before December 31,1997, the employee may be furnishedhis/her copy any time after employmentends, but no later than January 31, 1998.However, if the employee requests FormW–2, you must furnish him or her thecompleted copies within 30 days of therequest or of the final wage payment,whichever is later. This requirement ismet if the form is properly addressed,mailed, and postmarked on or before thedue date. Failure to timely file with SSAor to timely provide the employee cop-ies may subject the employer to penal-ties. Employers needing additional timeto file Form W–2 information (paper or

magnetic media) with SSA may requestan extension of time to file by submit-ting Form 8809,Request for Extensionof Time to File Information Returns,tothe IRS/MCC at the address (or alterna-tive address) listed in Sec. 3.01, above.The extension request should be filed asearly as possible, but must be post-marked no later than the due date of theforms (March 2, 1998). DO NOTSEND FORM 8809 TO SSA.NOTE: APPROVAL OF THE EX-

TENSION IS NOT AUTOMATIC. Ap-proval or denial is based on administra-tive criteria and guidelines. Therequestor will receive an approval ordenial letter from IRS and must allow atleast 30 days for IRS to respond. Form8809 may be obtained through elec-tronic options on the Internet at http://www.irs.ustreas.gov; by modem to IRIS(703)321–8020; or by using the IRS FaxForms Program (703)487–4160, or bycalling 1–800–829–3676. You can alsocontact IRS/MCC (See the address andphone number in Sec. 3.01, above)..08 If requesting extensions of time

for more than 10 employers, IRS en-courages filers to submit the request ontape, tape cartridge, 5 1/4 or 3 1/2-inchdiskette, or electronically through theInformation Reporting Program BulletinBoard System (IRP–BBS).Transmittersrequesting an extension of time to filemore than 50 payers are required tofile the extension request on magneticmedia or electronically. Transmitterswho submit requests for multiple payerswill receive one approval letter with anattached list of payers covered underthat approval. Publication 1220,Specifi-cations for Filing Forms 1098, 1099series, 5498 and W–2G Electronicallyor on Magnetic Media,provides infor-mation on how to file requests forextensions of time on tape, diskette, orelectronically.

NOTE: To file a request for extensionsof time magnetically or electronicallyfor multiple payers, third party filersand/transmitters, must have an IRSTransmitter Control Code (Authoriza-tion to file information returns).

SEC. 4. GENERAL RULES FORFILING FORM W–3

.01 Employers submitting Form W–2(Copy A) on paper to SSA must trans-mit Forms W–2 with Form W–3..02 Form W–3 must be the same

width (7 inches) as the Forms W–2filed.

12

.03 Form W–3 should only be used totransmit paper Forms W–2 (Copy A).Magnetic media filers do not file FormW–3. Employers using magnetic mediamust transmit Form W–2 data withForm 6559, Transmitter Report andSummary of Magnetic Media,(and Form6559–A, Continuation Sheet for Form6559, if necessary). These forms may beobtained by calling either your SSAMMC (see listing in Appendix) or IRSat 1–800–829–3676.

.04 For 1997 Forms W–3, entries arenot needed for Adjusted total socialsecurity wages and tips(formerly box13) and Adjusted total Medicare wagesand tips(formerly box 14).

PART B. REQUIREMENTS FORFILING PAPER SUBSTITUTES

SEC. 1. REQUIREMENTS FORSUBSTITUTE ‘‘PRIVATELY PRINTED’’FORMS SUBMITTED TO SSA(FORMS W–2, COPY A, AND FORMSW–3)

.01 Employers may file privatelyprinted substitute Forms W–2 and W–3with SSA. The substitute form must bean exact replica of the IRS printed form(or official reproduction proof) with re-spect to layout and contents because itwill be read by machine. The Govern-ment Printing Office (GPO) symbolmust be deleted (see Sec. 1.16, below).The specifications and allowable toler-ances for the Copy A of substituteForms W–2 are provided later in thisRevenue Procedure. See Exhibit A forForm W–2 specifications. The specifica-tions for Forms W–3 are provided inExhibit B..02 Paper for substitute Forms W–2,

Copy A, and Form W–3 (cut sheets andcontinuous pinfeed forms) that are to befiled with SSA must be white 100%bleached chemical wood,18–20 poundpaper only, optical character recognition(OCR) bond produced in accordancewith the specifications shown as fol-lows:

Paper Requirements

1 Acidity: pH value, average, notless than . . . . . . . . . . . . . . . . . . . . 4.5

2 Basis Weight 17 x 22500 cut sheets. . . . . . . . . . . . . .18–20Metric equivalent grams per.sq. meter . . . . . . . . . . . . . . . . . .60–75A tolerance of ±5 pct. shall be al-lowed.

3 Stiffness: Average, each direction,not less than Gurley milligrams—Cross direction . . . . . . . . . . . . . .50Machine direction. . . . . . . . . . . .80

4 Tearing Strength: Average, eachdirection, not less than—Grams . .40

5 Opacity: Average, not lessthan—Percent . . . . . . . . . . . . . . . . .82

6 Reflectivity: Average not lessthan—percent . . . . . . . . . . . . . . . . .68

7 Thickness:Average . . . . . . . . . . . . . . inch 0.0038Metric equivalent . . . . . . . mm 0.097A tolerance of ±0.0005 inch(0.0127mm) shall be allowed. Papershall not vary more than 0.0004inch (0.012mm) from one edge tothe other.

8 Porosity: Average, not lessthan—seconds. . . . . . . . . . . . . . . . .10

9 Finish (smoothness):Average, each side—seconds. .20–55(For information only, theSheffield equivalent unit . .170–d100

10 Dirt: Average, each side, not toexceed— Parts per million . . . . . . .8

NOTE: Reclaimed fiber in any per-centage is permitted, provided the re-quirements of this standard are met.DONOT USE RECYCLED PAPER..03 All printing for Copy A (of

Forms W–2) and Form W–3 will be inred OCR dropout ink, as specified be-low, except for the form identifyingnumbers ‘22222’ or ‘33333’ at the topof the form, as well as thetax year atthe bottom of the form (see Exhibits Cand D), must be printed innon-reflective black ink. All other printingwill be in red OCR drop-out ink meet-ing, or comparable to, the specificationsin this paragraph. The OCR drop-out inkfor paper Forms W–2, Copy A, andW–3 is specified as Flint Ink (formerlySinclair and Valentine) J–6983 red inkor equivalent. This is the same ink thatis used for Copy A of the Form 1099series. The use of this is required for1997 Forms W–3 and W–2, Copy A.NOTE: Printing in any other red OCRdropout ink must be cleared by contact-ing Banc-Tech Corp., Attn: Forms De-signer & Analyst, P.O. Box 660204,MS–77, Dallas, TX 75266 (214–579–6927—This is a voice mail number.Leave a message and your call will bereturned)..04 Type must be substantially identi-

cal in size and shape with correspondingtype on the official form. The formidentifying number MUST be printed innon-reflective black ink using anOCR–A font; 10 characters per inch.

1. On Form W–3 and Copy A ofForms W–2, all the perimeter rulesmust be 1-point (0.014 inch), whileall other rules must be one-half point(0.007 inch).2. Vertical rules must be parallel tothe left edge of the form; horizontalrules parallel to the top edge..05 Two official Forms W–2 (Copy

A), or one official Form W–3 are con-tained on a single page that is 7 incheswide (exclusive of any snap-stubs) by11 inches deep. The form identifyingnumber for the official forms (7 incheswide) is ‘22222’ (5 digits) for FormW–2 and ‘33333’ (5 digits) for FormW–3. The top margin for1997 FormsW–3 and W–2, Copy A is .375 inch (3/8inch). The right margin must be .15 inchand the left margin .35 inch (plus orminus .0313 inch). The margins areunchanged from1996. Margins must befree of all printing. For Forms W–2,Copy A, the combination width of Box1, ‘‘Control number’’, and the box con-taining the form identifying number(22222) must always be 2.0 inches. ForForm W–3, the combined width of theseboxes must always be 2.2 inches.NOTE: All form identifying numbers

are to be printed in non-reflective blackink, using OCR-A font, printed 10 char-acters per inch..06 The depth of the individual scan-

nable image on a page must be the sameas that of the IRS printed forms. ForForm W–2, the depth is 4.833 inches(see Exhibit A). The scannable imagedepth of the Form W–3 on a page mustbe 4.167 inches (see Exhibit B)..07 The words ‘‘Do NOT Cut or

Separate Forms on This Page’’must beprinted in red OCR dropout ink betweenthe two Forms W–2 on Copy A only(see Exhibit A). Perforations are re-quired on all copies (except Copy A) toenable the separation of individualforms. Continuous pinfeed copy A formsmust be separated at the page perfora-tion into individual 119 deep pages be-fore submission to SSA. The pinfeedstrips must also be removed. However,the two W–2 documents contained onthe 119 deep pagemust notbe separated..08 The words‘‘For Paperwork Re-

duction Act Notice, see separate in-structions’’, must be printed in redOCR drop-out ink on Forms W–2, CopyA (see Exhibit A for format and loca-tion)..09 The Office of Management and

Budget (OMB) Numbermustbe printed

13

on eachply of Form W–2 and W–3 (seeExhibits A and B for format and loca-tion)..10 The section titled ‘‘Where to

File’’ in the general instructions on theemployer’s copy of the official FormW–3, must beprinted in its entirety onall substitute Forms W–3 (see ExhibitB). Household employers filing FormsW–2 for household employees shouldsend the forms to thesame addressshown listed in the instructions.Note: Household employers, even

those with only one household em-ployee, must file Form W–3 withForm W–2. On Form W–2, mark the‘‘Hshld. Emp.’’ Box in Box 15, and onForm W–3 mark the ‘‘Hshld.’’ Box inBox b..11 The Paperwork Reduction Act

Notice must be printed on Form W–3(see Exhibit B for format and location)..12 Privately printed continuous sub-

stitute Forms W–2, Copy A, must beperforated at each 119 page depth. Noperforations are allowed between theindividual forms (5 1/2 inch FormsW–2) on a single copy page of Copy A.Continuous pinfeed Copy A forms mustbe separated at the page perforationprior to submitting them to SSA. TwoCopy A forms are contained on onepage. The two copies must remain to-gether on the page. Only the pages areto be separated (burst). Perforations arerequired between all the otherindividualcopies on a page (Copies 1, B, C, 2, andD) included in the set..13 The back of a substitute Form

W–2, Copy A, and Form W–3 (page 1)must be free of all printing..14 Spot carbons areNOT permitted

for Copy A of Forms W–2 or for FormW–3. Interleaved carbon should beblack and must be of good quality toassure legibility of information on allcopies and to preclude smudging..15 Chemical transfer paper is permit-

ted for Form W–2, Copy A, and FormW–3 only if the following standards aremet:1. Only chemically backedpaper is

acceptable for Copy A.2. Carbon coated forms are not per-

mitted. Front and back chemicallytreated paper cannot be processed prop-erly by machine.3. Chemically transferred images

must be black in color..16 The GPO symbol must not be

placed on substitute Copy A of FormsW–2..17 The Catalog Number, shown on

the 1997 Form W–2 as ‘‘Cat. No.

10134D’’, and the Catalog Numbershown on the 1996 Form W–3 as ‘‘Cat.No. 10159Y’’, is used for IRS distribu-tion purposes and should not be printedon substitute forms.

SEC. 2. REQUIREMENTS FORSUBSTITUTE FORMS FURNISHEDTO EMPLOYEES (COPIES B, C,AND 2 OF FORMS W–2)

.01 All employers (including thosewho file on magnetic media and do notfile a paper Copy A) must furnishemployees with at least two copies ofthe Forms W–2 (three or more foremployees required to file a state, city,or local income tax return). The dimen-sions of these copies (Copies B, C, etc.)but not copy A, may be expanded fromthe dimensions of the official form toallow space for conveying additionalinformation, such as additional entriesrequired for Boxes 13 or 14, withhold-ing from pay for health insurance, uniondues, bonds, charity, etc. The require-ment that a maximum of three items arepermitted in Box 13 of Form W–2applies only to the paperCopy A that isfiled with SSA. As long as sufficientspace is provided on the substitute em-ployee copies, as many items as neededmay be placed in Box 13 or box 14.Also, on these copies (Copies B, C,etc.), the size of these boxes may beadjusted. (However, see the minimumsizes for certain boxes, below). Thismay permit the employer to eliminateother statements or notices that wouldotherwise be furnished to employees.1. The MAXIMUM allowable dimen-

sions for employee copies of FormsW–2 are:(a) depth should be no more than 6.5

inches;(b) width should be no more than 8.5

inches.2. The MINIMUM allowable dimen-

sions for employee copies of FormsW–2 are:(a) 2.67 inches by 5.0 inches.(b) horizontal or vertical format is

permitted.NOTE: These minimum and maximumsize specifications are for1997only andmay change for future years. The maxi-mum width of 8.5 inches is for em-ployee copies of Form W–2 only. Thewidth of the paper Copy A, submitted toSSA, is specified in Part B, section 1.05above..02 The paper for all copies should

be white. The substitute Copy B (or itsequal), that employees are instructed to

attach to their Federal income tax return,must be at least 12 pound paper (basis17 x 22–500), while the other copiesfurnished the employee should be atleast 9-pound paper (basis 17 x 22–500)..03 Interleaved carbon and chemical

transfer paper for employee copies mustmeet the following standards:

1. All copies must be CLEARLYLEGIBLE;

2. All copies must have the capa-bility to be photocopied; and

3. Fading must not be of such adegree as to preclude legibility and theability to photocopy.In general, black chemical transfer

inks are preferred; other colors are per-mitted only if the above standards aremet. ‘‘Spot carbons’’ are NOT permitted(See Part B, Sec. 1.15, above, for stan-dards for chemical transfer paper forCopy A.).04 The following requirements gov-

ern the private printing of employeecopies of Forms W–2. All substitutesmust be a form, which contains boxes,box numbers, and box titles that, whereapplicable, match the IRS printed form.The placement, numbering, and size ofcertain boxes (the ‘‘core’’ information)is specified as follows:1. The items and box numbers that

constitute the core data are:Box 1—Wages, tips, other compensa-

tion,Box 2—Federal income tax withheld,Box 3—Social Security Wages/

Railroad Retirement Com-pensation,

Box 4—Social Security tax withheld/Railroad Retirement TaxWithheld,

Box 5—Medicare wages and tips/Railroad Retirement Tips,and

Box 6—Medicare tax withheld/Railroad Retirement TaxWithheld.

NOTE: Railroad employees may not besubject to Social Security coverage butare subject to Railroad Retirement TaxTier I and II coverage. Railroad Com-pensation employers may make theabove modifications to Forms W–2 butonly for substitute Forms W–2 furnishedto employees andnot for any Copy Aforms to be filed with SSA.The ‘‘core’’ boxes must be printed inthe exact order on each line as on theIRS printed form (see the Exhibits at theend of this revenue procedure). Boxes 1and 2 must be next to each other, with

14

Boxes 3 and 4 below on the next line,and Boxes 5 and 6 on the line belowBoxes 3 and 4.2. The block of core data (Boxes 1

through 6) must be placed in the upperright of the form. Substitute employeecopies of Form W–2, which are printedusing a vertical format with dimensionssmaller than the IRS printed form, mayhave the core data entirely on the top ofthe form (see Exhibit F). In no instancewill boxes or other information be per-mitted to the right of the core data.Standard margins or a small amount ofother blank space may appear to the topor right of this data. The form title,number, or copy (Copy B, C, etc.) maybe at the top of the form. Also, areversed or blocked-out area to accom-modate a postal permit number or otherpostal considerations is permitted at theupper right of the form.3. Boxes 1 through 6 must each be a

minimum of 1 3/8 inches wide and 1/4inch deep.4. Other required boxes:—Employer identification number

(EIN),—Employer’s name, address, and ZIP

code,—Employee’s Social Security num-

ber, and—Employee’s name, address, and ZIP

code.These items are required to be presenton the form and must be in boxessimilar to those on the IRS printed form.However, they may be placed in anylocation, other than the top or upperright. The lettering system used on theIRS printed form (‘‘a’’ through ‘‘f’’)need not be used. The employer’s EINmay be included in the box for theemployer’s name and address. If this isdone, a separate box for the EIN is notrequired. The Control number box (Box‘‘a’’ on the IRS printed form) is notrequired.5. The Tax Year (1997) MUST be

clearly printed on all copies of substituteForms W–2. It is recommended (but notrequired) that this information be lo-cated to the right of the form title on thelower left of the Form W–2.The taxyear must also be printed in non-reflective black ink using 24 ptOCR–A font.6. If applicable, Social Security tips

MUST be shown separately from SocialSecurity wages. A separate box is notrequired unless Social Security tips areto be reported.Boxes 1 and 2 on Copy B are

required to be outlined in bold 2-point

rule (see Exhibit E) or highlighted insome manner to distinguish these boxes.7. If a box for Advance EIC (Earned

Income Credit) payments (Box 9) ispresent, the box must be outlined inbold 2-point rule or highlighted in somemanner to distinguish this box. How-ever, if no amounts are paid for Ad-vance EIC, this box is not required andmay be omitted by printers. Do not useBox 9 for any other purpose than report-ing Advance EIC payments.8. If Allocated tips (Box 8) are being

reported for the individual employee (orclass of employees that are being pro-vided Forms W–2), it is recommended(but not required) that this box also beoutlined in bold 2-point rule or high-lighted on Copy B. However, if allo-cated tips are not being reported, thisbox may be omitted by printers.9. If Form W–2 contains additional

data concerning payroll deductions (e.g.,saving bonds withholding, retirementwithholding, or payroll savings), thereshould be a special highlighting of theareas pertaining to Federal income taxwithheld; wages, tips, and other com-pensation; or Advance EIC (Earned In-come Credit) payments that are relatedto those items.10. Employers who are required to

report or withhold state income taxinformation are required to include thefollowing boxes on substitute FormsW–2:Box 16—State and Employer’s state

identification (I.D.) number,Box 17—State wages, tips, etc., andBox 18—State income tax withheld.11. Employers who are required to

report or withhold local income taxinformation are required to include thefollowing boxes on substitute FormsW–2:Box 19—Locality nameBox 20—Local wages, tips, etc., andBox 21—Local income tax.12. If state or local tax information is

required, this information is also consid-ered ‘‘core data.’’ The state and localinformation MUST be placed at thebottom of the form. See the exhibits atthe end of this revenue procedure.13. Other boxes on the IRS printed

form (Boxes 7 through 15) need notappear on substitute Forms W–2 pro-vided to employeesunlessan employerhas that item of information to report toan employee. For example, if an em-ployee did not have Social Security tips(Box 7), Allocated tips (Box 8), orAdvance EIC payments (Box 9), the

form could be printed without theseboxes. However, if the employer hadprovided amounts for dependent carebenefits, those amounts would be re-quired to be reported separately andshown in a box labeled ‘‘Box 10, De-pendent care benefits,’’ as on the IRSprinted form and the exhibits in thisrevenue procedure.14. Employers may provide multiple

entries in Box 13, but each entry shoulduse the same codes as assigned by theIRS for that type of item. (See Refer-ence Guide for Box 13 Codes in the1997 Form W–2 instructions). For ex-ample, employers reporting deferredcompensation must label the box as‘‘13d’’ and not as ‘‘13a’’, even though itis the first or only item to go in thisbox. Use the codes shown with thedollar amount. On Copy A, Form W–2,do not enter more than three codes inthis box. If more than three items needto be reported in box 13, use a separateForm W–2 to report the additional items(see Multiple Forms in the 1997 FormW–2 instructions). However, employersmay enter more than three codes in box13 of Copies 1, 2, B, C, and D of FormW–2. Do not report in box 13 any itemsthat are not listed ascodes A–T in theForm W–2 instructions. Do not reportthe same Federal tax data to the SSA onmore than one Copy A, Form W–2.15. If you are a military employer

and provide your employee with basicquarters, subsistence allowances, andcombat zone compensation, report theamount in Box 13, Form W–2, usingcode Q.16. Beginning January 1, 1997, em-

ployer’s contributions to an employee’sMedical Savings Account’s (MSAs),must be reported in Box 13, Form W–2,using code R.17. Beginning January 1, 1997, an

employees elective contributions to asalary reduction SIMPLE retirement ac-count must be included in Box 13, FormW–2, using code S. However, if theamount is contributed to a SIMPLE thatis part of a section 401(k) arrangement,that amount must be reported in Box 13,Form W–2, using code D.18. Beginning January 1, 1997,

amounts paid or expenses incurred byan employer to or for an employee forqualified adoption expenses must bereported in Box 13, Form W–2, usingcode T.Note: See the 1997 Form W–2 in-

structions for more information re-garding codes R, S, and T.

15

19. Employers may use Box 14 forany other information you want to giveyour employee. Please label each item.Examples are union dues, health insur-ance, premiums deducted, nontaxableincome, voluntary after-tax contribu-tions, or educational assistance pay-ments..05 Substitute forms for employees

(Copies B, C, and 2 of Forms W–2)must meet the following requirements:1. All copies of Forms W–2 must

clearly show the form number, the formtitle, and the tax year. The title of FormW–2 is ‘‘Wage and Tax Statement.’’ It isrecommended (but not required) thatthis be located on the bottom left ofForm W–2. The reference to the Depart-ment of the Treasury—Internal RevenueService must be on all copies of FormW–2 provided to the employee. It isrecommended (but not required) thatthis be located on the bottom right ofForm W–2.2. If the substitute forms arenot

labeled as to the disposition of thecopies, then written notification must beprovided to each employee as specifiedbelow:(a) The first copy of the form (Copy

B) is filed with the employee’s Federaltax return.(b) The second copy of the form

(Copy C) is for the employee’s records.(c) If applicable, the third copy

(Copy 2) of the form is filed with theemployee’s state, city, or local incometax return.3. If the substitute forms arelabeled,

the forms must contain the applicabledescription:‘‘Copy B, to be filed with employee’s

Federal tax return,’’and ‘‘Copy C, foremployee’s records.’’ It is recommended(but not required) that this be located onthe lower left of Form W–2. The desig-nation ‘‘Form W–2, is recommended(but not required) to be located on thelower left of Form W–2 and Departmentof the Treasury—Internal Revenue Ser-vice.’’ It is recommended (but not re-quired) that this be located on the lowerright of Form W–2.4. Instructions similar to those con-

tained on the back of Copies B and C ofthe official Form W–2 must be providedto each employees. Employers maymodify or delete certain information inthese instructions (such as modificationfor employees of railroads to coverRailroad Retirement Tier I and II Com-pensation and Taxes. Employers are al-lowed to delete instructions that do notapply to the employee. For example, if

none of the employees have dependentcare benefits (Box 10), the employermay delete the instructions for that item.Also, if an employer will only be report-ing amounts for a 401(k) plan in Box13, those instructions may be modifiedto cover only Section 401(k) contribu-tions.5. You must notify employees who

have no income tax withheld that theymay be able to claim a tax refundbecause of the earned income credit(EIC). You will meet this notificationrequirement if you issue the IRS FormW–2 with the EIC notice on the back ofthe employee’s copy (Copy B), or asubstitute Form W–2 with the samestatement. You may also meet the re-quirement by providing a substituteForm W–2 without the EIC notice andNotice 797, Possible Federal Tax Re-fund Due to the Earned Income Credit(EIC), or your own statement that con-tains the same wording. For more infor-mation about notification requirements,see Notice 1015(formerly Pub. 1325),Employers-Have You Told Your Em-ployees About the Earned Income Credit(EIC).NOTE: Printers are cautioned that the

rules set forth here (Part B. Sec. 2)apply to employee copies (Copies B, C,etc.) only. Paper filers who send Copy Aof Form W–2 to SSA must follow therequirements in Part B. Sec. 3, belowfor those paper submissions.

SEC. 3. GENERAL RULES FORFILING ‘‘PAPER SUBSTITUTES’’FOR FORMS W–2 AND W–3

.01 Paper substitutes that conform to-tally to the specifications contained inthis revenue procedure may be privatelyprinted without the prior approval of theIRS. Penalties may be assessed for notcomplying with the form specificationsset forth in this publication. SUBSTI-TUTE FORMS THAT DO NOT CON-FORM TOTALLY TO THESE SPECI-FICATIONS ARE NOT ACCEPTABLE.This applies to both paper substitutesthat are filed with SSA and those thatare given to employees.Forms shouldnot be submitted to IRS or SSA forspecific approval. However, if you areuncertain of any specification set forthherein and want that specification clari-fied, you may submit a letter citing thespecification in question, your interpre-tation of that specification, and an ex-ample of how the form would appear ifproduced using your understanding ofthe specification. Any questions pertain-

ing to Copies B, C, and 2 of FormsW–2 should be sent to:Internal Revenue ServiceATTN: Substitute Form W–2

CoordinatorT:C:O:L,Room 7510

1111 Constitution Avenue, N.W.Washington, DC 20224Any questions pertaining to Copy A,

Form W–2, and Form W–3 should beforwarded to:Social Security AdministrationData Operations Center1150 E. Mountain DriveWilkes-Barre, PA 18702–7997Attn: Program Analyst OfficeNOTE: You should allow at least30

days for the IRS and SSA to respond..02 Forms W–2 and W–3 are subject

to annual review and possible change.Employers are cautioned against over-stocking supplies of privately printedsubstitutes..03 Copies of the current year IRS

printed Forms W–2 and W–3 and theinstructions for these forms may beobtained through electronic options onthe Internet at http://www.irs.ustreas.gov,or from most IRS offices or by calling1–800–829–3676. The IRS providesonly cut sheet sets..04 Substitute Forms W–2 and W–3

transmitted to SSA should generallycontain only data that is required by theForm W–2, the Form W–2 instructions,and this revenue procedure..05 Substitute Forms W–2, Copy A,

and W–3 are machine imaged andscanned by Social Security, thereforethese forms must meet the same specifi-cations as Forms W–2 and W–3 pro-duced by IRS. The vertical and horizon-tal spacing for all Federal payment anddata boxes on Form W–2 must be incompliance with the specifications con-tained herein..06 All ballot boxes on Forms W–2,

Copy A (Box 15), and W–3 (Box ‘‘b’’)must be 8-point boxes.NOTE: If a box is marked, more than50% of the applicable ballot box mustbe covered by an ‘‘X’’..07 Copy A of Form W–2 and Form

W–3 must have the form producer’sEIN entered to the left of ‘‘Departmentof Treasury’’.

PART C. ADDITIONAL INSTRUC-TIONS

SEC. 1. INSTRUCTIONS FORFORMS PRINTERS

.01 Except as provided below, ifmagnetic media is not used for filing

16

with SSA, the substitute copies ofForms W–2 assembly should be ar-ranged in the same order as the IRSprinted Forms W–2. Copy A should befirst, followed sequentially by perforatedsets (Copies 1, B, C, 2, and D). Thesubstitute form to be filed by the em-ployer with SSA must carry the designa-tion ‘‘Copy A.’’NOTE: Magnetic media filers do notsubmit Copy A of Form W–2 or FormW–3. Form 6559 is the transmittal formagnetic media filed Form W–2 data.1. It is not a requirement that pri-

vately printed substitute forms contain acopy to be retained by employers (CopyD). However, employers must be pre-pared to verify or duplicate this infor-mation if it is requested by the IRS orSSA. Paper filers that do not keep CopyD should be able to generate a facsimileof Copy A in case of loss.2. Except as provided in the arrange-

ment of the official assemblies, addi-tional copies that may be prepared byemployers shall not be placed ahead ofthe copy ‘‘For EMPLOYEE’SRECORDS,’’ Form W–2 (Copy C).3. Instructions similar to those con-

tained on the back ofCopies B and Cof the official form MUST be providedto each employee. These instructionsmay be printed on the back of thesubstitute Copy B and C or may beprovided to employees on a separatestatement. Do not print these instruc-tions on the back the the copy that is tobe filed with the employee’s state orlocal returns..02 All privately printed Forms W–3

and Forms W–2 (Copy A), must havethe tax year, form number, and formtitle printed on the bottom face of eachform using identical type to that of theofficial format. The tax year must beprinted in non-reflective black inkusing 24 pt OCRA-font, on all copiesof Forms W–2, and Forms W–3. Theform title(s), e.g., Wage and TaxStatement must be printed in redOCR drop-out ink on Form W–2,Copy A, and Form W–3. The formidentifying number of Forms W–2and W–3, must be printed n blackreflective ink, using OCRA-font,printed 10 characters per inch. Theword ‘‘Form’’ on the W–2 and W–3must be printed in red OCR drop-outink..03 The substitute Form W–2, Copy

B, which employees attach to their Fed-eral income tax return, must be at least12-pound paper (basis 17 x 22–500)while the other copies furnished to em-

ployee’s should be at least 9-poundpaper (basis 17 x 22–500)..04 Employee copies of Forms W–2

(Copies B, C, etc.), including those thatare printed on a single sheet of paper,MUST be produced so as to be easilyseparated by the employee. Perforationsbetween the individual copies that areprinted on a single sheet of paper satisfythis requirement..05 The Form W–2, Copy A, and the

OCR bond Form W–3 that are filedwith SSA must have no printing on thereverse side..06 Instructions similar to those pro-

vided as part of the official form mustbe provided as part of any substituteForm W–3..07 The copy of the substitute Form

W–3 that contains the instructions and isto be retained by the employer shouldbe at least 18-pound paper (basis 17 x22–500).

SEC. 2. INSTRUCTIONS FOREMPLOYERS

.01 Only originals or ribbon copies ofCopy A (Forms W–2) and Form W–3may be filed with SSA.Carbon copiesand photocopies are not acceptable..02 Employers should type or ma-

chine print entries on forms wheneverpossible and provide good quality dataentries by using a high quality type face,inserting data in the middle of blocksthat are well separated from other print-ing and guidelines, and taking any othermeasures that will guarantee clear, sharpimages. The employer must provide amachine scannable form for Copy A.The employer must also provide payeecopies (Copies B, C, and 2) that arelegible and capable of being photocop-ied (by the employee)..03 The Employer Identification

Number (EIN) may be entered in theEmployer’s name and address box onCopy A of Forms W–2 (Box ‘‘c’’ on theIRS printed Form W–2). If this is done,the EIN need not be entered in the boxprovided for the EIN (Box ‘‘b’’ on theIRS printed Form W–2). The EIN mustbe entered in Box ‘‘e’’ of the FormW–3..04 The employer’s name, address,

and EIN may be preprinted..05 The optional employer’s state

number may be pre-printed in the em-ployer’s name, address, and ZIP codebox. If this is done, the Employer’s stateI.D. Number section in Box 16 ofForms W–2 need not be completed, aslong as the applicable state taxing au-

thority does not object.Please checkwith the appropriate state taxing au-thority before doing this..06 Generally, an agent that has an

approved Form(s) 2678, Employer Ap-pointment of Agent, should enter itsname as the employer in box c of FormW–2, and file one Form W–2. However,if the agent is acting as an agent for twoor more employers, or is an employerand is acting as an agent for anotheremployer, and pays social securitywages in excess of the wage base to anindividual, special reporting for pay-ments to that individual is needed. Theagent should file separate Forms W–2reflecting the wages paid by each em-ployer. Box ‘‘c’’ of Form W–2 shouldinclude name of agent, agent for (nameof employer), and address of agent.Each Form W–2 should reflect the EINof the agent in Box ‘‘b’’. In addition theemployer’s EIN should be shown inBox ‘‘h’’ of Form W–3..07 The preparation and filing in-

structions for Forms W–2 are containedin the 1997 Instructions for Form W–2.The preparation and filing instructionsfor Form W–3 are contained as part ofthe 1997 Form W–3 snap set assembly..08 To avoid confusion and questions

by employees, employers are encour-aged to delete the following items fromthe employee copies of Forms W–2 thatare provided to employees:1 Form identifying number (e.g.,

22222);2 The words ‘‘subtotal’’ and ‘‘void’’

and their boxes;3 Any other captions or box number

that would not be of any informationaluse to employees (unless otherwise re-quired)..09 Employers should use the IRS

supplied label when filing Form W–3with SSA. The label should be placedinside the brackets printed in boxes ‘‘e’’and ‘‘f’’.

SEC. 3. OFFICE OF MANAGEMENT ANDBUDGET (OMB) REQUIREMENTS FORSUBSTITUTE FORMS

.01 The Paperwork Reduction Act re-quires: (1) OMB approval of IRS taxforms, (2) that each form (all copies)show the OMB approval number and,when appropriate, the form’s expirationdate, and (3) that the form (or itsinstructions) state why IRS is collectingthe information, how we will use it andwhether it must be given to us. Theofficial IRS form (or instructions) willcontain this information.

17

.02 As it applies to substitute IRSforms, this means:1. All substitute forms (all copies)

must show the OMB number as itappears on the official IRS printed form(see Exhibits A and B).2. The OMB number must be in one

of the following formats:OMB No. 1545–0008 (preferred),

or

OMB # 1545–00083. You must inform the users of your

substitute forms of the reasons for IRScollection, use, and requirements, asstated in the instructions for the officialIRS form.

Sec. 4. FORMS and PUBLICATIONS

.01 Electronic access to IRS taxforms, instructions, publications, and

other tax data is available through thefollowing:Modem: IRIS at FedWorld (703)

321–8020Technical questions regarding

FedWorld can be directed to theFedWorld help desk 24 hours a day at(703) 487–4608.Internet: Telnet—iris.irs.ustreas.govFTP—ttp.irs.ustreas.govWWW—http://www.irs.ustreas.govFax Forms: (703) 487–4160

.02 Over 100 of the most requestedforms and instructions may be obtainedvia your fax machine. Just call(703)487–4160 from the telephone con-nected to your fax machine..03 A CD–ROM containing over

2,000 tax forms, instructions, and publi-cations may be purchased from theGovernment Printing Office (GPO), Su-

perintendent of Documents (Supt.Docs.). Current tax year materials, andtax forms from 1991 and publicationsfrom 1994, are included on the disc. Toorder the CD–ROM, contact Supt. Docs.at (202) 512–1800 (select Option #1), orby computer through GPO’s InternetWeb Site (http;//www.access.gpo.gov/sudocs)..04 List of Social Security Adminis-

trations Magnetic Media Coordinators isincluded in the Appendix.

Sec. 5 EFFECT ON OTHER REVENUEPROCEDURES

.01 Rev. Procs. 96–24 and 96–24A,I.R.B. 1996–5, dated January 29, 1996,and I.R.B. 1996–15, dated April 8,1996, (Reprinted as Publication 1141,Revised4–96), is superseded.

18

19

20

21

22

23

24

25

Part IV. Items of General InterestFoundations Status of CertainOrganizations

Announcement 97–39

The following organizations havefailed to establish or have been unableto maintain their status as public chari-ties or as operating foundations. Accord-ingly, grantors and contributors may not,after this date, rely on previous rulingsor designations in the Cumulative Listof Organizations (Publication 78), or onthe presumption arising from the filingof notices under section 508(b) of theCode. This listing doesnot indicate thatthe organizations have lost their statusas organizations described in section501(c)(3), eligible to receive deductiblecontributions.Former Public Charities. The follow-

ing organizations (which have beentreated as organizations that are notprivate foundations described in section509(a) of the Code) are now classifiedas private foundations:Absecon Police Athletic League Pal,Absecon, NJ

African-American Adventure, Inc.,Hyattsville, MD

Ageless Wisdom Seminary, Scottsdale,AZ

Alyce Bartholomew Childrens Museum,Laporte, IN

Amethyst Foundation Judi Laws,Philadelphia, PA

Amoco Dealers & Jobbers for Kids,Inc., Clearwater, FL

Anderson Art Association, Anderson, SCAnderson Community Aquatics Club,Inc., Anderson, IN

Anderson Urban League, Anderson, SCArts and Humanities Council of PickensCounty, Incorporated, Reform, AL

California Earthquake Legacy, SanFrancisco, CA

California Foundation for the Blind, SanFrancisco, CA

Camera Arts Foundation, Santa Ana, CACamp Rainbow, Encino, CAC and D for Youth, Inc., Stockton, CACastro Valley Group Home, CastroValley, CA

CDF Museum Foundation, Ione, CACenter for Constitutional Issues inTechnology, Los Altos, CA

Center for Creative Education, Seattle,WA

Center for Creative Work, Inc., SanFrancisco, CA

Center for the Support & Protection ofIndian Religious & Indigenous(Center for the Spirit), Oakland, CA

Charles Thaxton, Konos Connection,Ramona, CA

Children Loving Others With Needs,Spring Valley, CA

Childrens Literacy Corporation ofAmerica, Inc., Portland, OR

Childrens Services of Central California,Fresno, CA

Chitman Education and Research Fund,Inc., San Diego, CA

Christian Airline Personnel MissionaryOutreach, Everett, WA

Christians Neighbors Network, MenloPark, CA

CHS Properties I, Pasadena, CACoalition for Kids, Inc., Grants Pass,OR

Coalition for the Creative Arts,Berkeley, CA

Clergy Wellness Program, Hood River,OR

Committee To Aid Ukraine of NorthernCalifornia, San Francisco, CA

Conejo Open Alternative SchoolTaskforce, Newbury Park, CA

Consumer Advocates for Legal Justice,West Hills, CA

Cook Inlet Vigil, Homer, AKCooley S Landing Center Incorporated,East Palo Alto, CA

Copper Mountain Foundation, Cordova,AK

Create the Magic of Giving Foundation,Redondo Beach, CA

Delphi Academy, Nicasio, CADelta Rebels Manteca Youth Football,Manteca, CA

Destiny Bound Corporation, SantaBarbara, CA

Dots for Tots, Inc., Tigard, OREarth Children, San Diego, CAEast Honolulu Girls Softball AmateurSoftball Association Jr Olympics,Honolulu, HI

Educational Theatre for Higher InnerConsciousness, Santa Rosa, CA

Eighty First Avenue Softball Club,Mercer Island, WA

Everglades Equestrian Society, Inc.,Bonita Springs, FL

Exodus Foundation, Las Vegas, NVGambling Problems Information, Inc.,San Jose, CA

Garmons Group Home, Stockton, CAGentle Shepard Ministries, Inc., NorthHollywood, CA

Glea Foundation, Honolulu, HIGlobal Relief and Childrens Services,Olympia, WA

Great Basin Nature Interpreters, Reno,NV

Greater Redmond Foundation, Seattle,WA

Greek Folklore Dance Company,Fremont, CA

Gunther Klaus African Foundation, LosAngeles, CA

Guye Peak Alpine Foundation, Issaquah,WA

Hendersonville Friends of ChamberMusic, Hendersonville, NC

Jewel Baker Education Foundation,Berkeley, CA

Jus County Cloggers of San Jose,Sunnyvale, CA

Kahala Foundation, Honolulu, HIKappa Alpha of Theta Tau ThetaSorority, Inc., Visalia, CA

Kapuna Foundation, Wailuku, HIKathleen A Toon Ministries, Hesperia,CA

Kings Court Play RS, Inc., SanFrancisco, CA

Klamath Siskiyou Coalition, CaveJunction, OR

Knix Swim Club, Eagle River, AKKorean American Children & YouthsChoir, Irvine, CA

Lake Region Basketball OfficialsAssociation, Lakeland, FL

Lamar County Literacy Council, Inc.,Paris, TX

Laredo Independent School District,Laredo, TX

Leonia Education AssociationScholarship Corp., Inc., Leonia, NJ

Miami Killian Senior High School BandPatrons, Incorporated, Miami, FL

Michigan Wrestling Federation, ClintonTwp., MI

Mid America Games for the Disabled,Inc., Mission, KS

National Transplant Action, Inc.,Washington, DC

New Group Theatre Troupe, El Paso,TX

North Texas State Soccer AssociationDesoto, Desoto, TX

Northwest Indiana Excellence in TheatreFoundation, Inc., Hammond, IN

Organization of Positive Youth, Inc.,Philadelphia, PA

Parents on the Move, Inc., Irwinton, GAPeninsula ScholarshipFoundation-Reach, Yorktown, VA

Pennsylvania Babe Ruth Leagues, Inc.,Greentown, PA

Plan II Students Association, Austin, TXRamazzini Institute for Occupationaland Env. Health Res., Inc., Solomons,MD

27 1997–16 I.R.B.

Reading Fleming Middle School PTO,Flemington, NJ

Ress of Puerto Rico, Inc., San Juan, PRRSD Foundation, Houston, TXSafety First Foundation, Inc., Tucker,GA

Salvageable Consumable RecyclableArts Parts, Houston, TX

Science Alliance for Valuing theEnvironment, Inc., Sylvania, OH

Second Mile, Austin, TXTheatre of Dare, Nags Head, NCTom Martino Help Center Foundation,Littleton, CO

Troup Band Booster Club, Troup, TXTroy Area Gators, Troy, MIUnion County Housing Asst. Corp,Union, NJ

Vox Theatre Company, Philadelphia, PAIf an organization listed above sub-

mits information that warrants the re-newal of its classification as a publiccharity or as a private operating founda-tion, the Internal Revenue Service willissue a ruling or determination letterwith the revised classification as tofoundation status. Grantors and contribu-tors may thereafter rely upon such rul-ing or determination letter as providedin section 1.509(a)–7 of the Income TaxRegulations. It is not the practice of theService to announce such revised classi-fication of foundation status in the Inter-nal Revenue Bulletin.

Credit for Employer Social SecurityTaxes Paid on Employee Tips;Correction

Announcement 97–40

AGENCY: Internal Revenue Service,Treasury.

ACTION: Correction to the removal oftemporary regulations.

SUMMARY: This document contains acorrection to the removal of temporaryregulations (T.D. 8699[1997–6 I.R.B. 4])which were published in theFederalRegister on Friday, December 20, 1996(61 FR 67212). That publication re-moves the temporary regulations per-taining to the credit for employer FICAtaxes paid with respect to certain tipsreceived by employees of food or bever-age establishments.

EFFECTIVE DATE: December 20,1996.

FOR FURTHER INFORMATION CON-TACT: Jean M. Casey, (202) 622–6060(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The removal of temporary regulationsthat is subject to this correction is undersection 45B of the Internal RevenueCode.

Need for Correction

As published, the removal of tempo-rary regulations (T.D. 8699) contains anerror which may prove to be misleadingand is in need of clarification.

Correction of Publication

Accordingly, the publication of theremoval of temporary regulations (T.D.8699) which is the subject of FR Doc.96–32249 is corrected as follows:On page 67212, column 3, in the

heading, the RIN‘‘RIN 1545–AS19’’ iscorrected to read‘‘RIN 1545–AV06’’.

Cynthia E. Grigsby,Chief, Regulations Unit,

Assistant Chief Counsel (Corporate).

(Filed by the Office of the Federal Register onMarch 11, 1997, 8:45 a.m., and published in theissue of the Federal Register for March 12, 1997,62 F.R. 11324)

Consolidated Returns—Limitationson the Use of Certain Losses andDeductions; Correction

Announcement 97–41

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Correction to final and tem-porary regulations.

SUMMARY: This document contains acorrection to final and temporary regula-

tions (T.D. 8677[1996–30 I.R.B. 7])which were published in the FederalRegister on Thursday, June 27, 1996 (61FR 33321). The final and temporaryregulations relate to the deductions andlosses of members and also to thecarryover and carryback of losses toconsolidated and separate return yearsand to the built-in deduction rules.

EFFECTIVE DATE: June 27, 1996.

FOR FURTHER INFORMATION CON-TACT: Diana Fulton at (202) 622–7550(not a toll-free number).

SUPPLEMENTARY INFORMATION

Background

The final and temporary regulationsthat are the subject of this correction areunder section 1502 of the Internal Rev-enue Code.

Need for Correction

As published, the final and temporaryregulations contain an error which mayprove to be misleading and is in need ofclarification.

Correction of Publication

Accordingly, the publication of thefinal and temporary regulations [T.D.8677] which are the subject of FR Doc.96–15823 is corrected as follows:

§ 1.1502–13 [Corrected]

On page 33323, the twentieth entry inthe table is corrected to read as follows:

Affectedsection Remove Add

* * * * *1.1502–13(h)(2),Example 2(b)

1.1502–22(c)

1.1502–22T

* * * * *

Cynthia E. Grigsby,Chief, Regulations Unit,

Assistant Chief Counsel (Corporate).

(Filed by the Office of the Federal Register onMarch 14, 1997, 8:45 a.m., and published in theissue of the Federal Register for March 17, 1997,62 F.R. 12541)

281997–16 I.R.B.

Announcement of the Expedited Suspension of Attorneys, Certified PublicAccountants, Enrolled Agents, and Enrolled Actuaries From Practice Before theInternal Revenue ServiceUnder title 31 of the Code of Federal

Regulations, section 10.76, the Directorof Practice is authorized to immediatelysuspend from practice before the Inter-nal Revenue Service any practitionerwho, within five years, from the datethe expedited proceeding is instituted,(1) has had a license to practice as anattorney, certified public accountant, oractuary suspended or revoked for cause;or (2) has been convicted of any crimeunder title 26 of the United States Codeor, of a felony under title 18 of theUnited States Code involving dishonestyor breach of trust.Attorneys, certified public accoun-

tants, enrolled agents and enrolled actu-

aries are prohibited in any Internal Rev-enue Service matter from directly orindirectly employing, accepting assis-tance from, being employed by, or shar-ing fees with, any practitioner disbarredor suspended from practice before theInternal Revenue Service.To enable attorneys, certified public

accountants, enrolled agents, and en-rolled actuaries to identify practitionersunder expedited suspension from prac-tice before the Internal Revenue Service,the Director of Practice will announce inthe Internal Revenue Bulletin the namesand addresses of practitioners who havebeen suspended from such practice, theirdesignation as attorney, certified public

accountant, enrolled agent, or enrolledactuary, and date or period of suspen-sion. This announcement will appear inthe weekly Bulletin at the earliest practi-cable date after such action and willcontinue to appear in the weekly Bulle-tins for five successive weeks or for asmany weeks as is practicable for eachattorney, certified public accountant, en-rolled agent, or enrolled actuary sosuspended and will be consolidated andpublished in the Cumulative Bulletin.The following individuals have been

placed under suspension from practicebefore the Internal Revenue Service byvirtue of the expedited proceeding pro-visions of the applicable regulations:

Name Address Designation Date of Suspension

Loberg, Thomas St. Paul, MN CPA Indefinite from November 13, 1996

Rose Ann Galati Thousand Oaks, CA CPA Indefinite from November 25, 1996

Labendeira, Anthony Fresno, CA CPA Indefinite from November 25, 1996

Nation, D. Mark Albuquerque, NM CPA Indefinite from November 25, 1996

Behren, Daryl D. Visalia, CA CPA Indefinite from November 25, 1996

Murphy, Virginia T. Laurinburg, NC CPA Indefinite from November 25, 1996

Best III, James M. Monroe, NC CPA Indefinite from November 25, 1996

Rehm, Aysha Tulsa, OK CPA Indefinite from November 25, 1996

Dineen, Lee M. Castle Hayne, NC CPA Indefinite from December 12, 1996

Miele, Ralph J. North Babylon, NY CPA Indefinite from February 14, 1997

29

Definition of TermsRevenue rulings and revenue procedures(hereinafter referred to as ‘‘rulings’’)that have an effect on previous rulingsuse the following defined terms to de-scribe the effect:Amplified describes a situation where

no change is being made in a priorpublished position, but the prior positionis being extended to apply to a variationof the fact situation set forth therein.Thus, if an earlier ruling held that aprinciple applied to A, and the newruling holds that the same principle alsoapplies to B, the earlier ruling is ampli-fied. (Compare withmodified, below).Clarified is used in those instances

where the language in a prior ruling isbeing made clear because the languagehas caused, or may cause, some confu-sion. It is not used where a position in aprior ruling is being changed.Distinguished describes a situation

where a ruling mentions a previouslypublished ruling and points out an es-sential difference between them.Modified is used where the substance

of a previously published position isbeing changed. Thus, if a prior rulingheld that a principle applied to A but notto B, and the new ruling holds that itapplies to both A and B, the prior ruling

is modified because it corrects a pub-lished position. (Compare withamplifiedandclarified, above).Obsoleteddescribes a previously pub-

lished ruling that is not considered de-terminative with respect to future trans-actions. This term is most commonlyused in a ruling that lists previouslypublished rulings that are obsoleted be-cause of changes in law or regulations.A ruling may also be obsoleted becausethe substance has been included in regu-lations subsequently adopted.Revoked describes situations where

the position in the previously publishedruling is not correct and the correctposition is being stated in the newruling.Supersededdescribes a situation

where the new ruling does nothing morethan restate the substance and situationof a previously published ruling (orrulings). Thus, the term is used torepublish under the 1986 Code andregulations the same position publishedunder the 1939 Code and regulations.The term is also used when it is desiredto republish in a single ruling a series ofsituations, names, etc., that were previ-ously published over a period of time inseparate rulings. If the new ruling does

more than restate the substance of aprior ruling, a combination of terms isused. For example,modifiedand super-seded describes a situation where thesubstance of a previously published rul-ing is being changed in part and iscontinued without change in part and itis desired to restate the valid portion ofthe previously published ruling in a newruling that is self contained. In this casethe previously published ruling is firstmodified and then, as modified, is su-perseded.Supplementedis used in situations in

which a list, such as a list of the namesof countries, is published in a ruling andthat list is expanded by adding furthernames in subsequent rulings. After theoriginal ruling has been supplementedseveral times, a new ruling may bepublished that includes the list in theoriginal ruling and the additions, andsupersedes all prior rulings in the series.Suspendedis used in rare situations to

show that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome ofcases in litigation, or the outcome of aService study.

AbbreviationsThe following abbreviations in current use andformerly used will appear in material published inthe Bulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C.—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

E.O.—Executive Order.

ER—Employer.

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

FC—Foreign Country.

FICA—Federal Insurance Contribution Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statements of Procedural Rules.

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

X—Corporation.

Y—Corporation.

Z—Corporation.

30

Numerical Finding List1

Bulletin 1997–1 through 1997–15Announcements:

97–1, 1997–2 I.R.B.6397–2, 1997–2 I.R.B.6397–3, 1997–2 I.R.B.6397–4, 1997–3 I.R.B.1497–5, 1997–3 I.R.B.1597–6, 1997–4 I.R.B.1197–7, 1997–4 I.R.B.1297–8, 1997–4 I.R.B.1297–9, 1997–5 I.R.B.2797–10, 1997–10 I.R.B.6497–11, 1997–6 I.R.B.1997–12, 1997–7 I.R.B.5597–13, 1997–8 I.R.B.3897–14, 1997–8 I.R.B.3897–15, 1997–9 I.R.B.2397–16, 1997–9 I.R.B.2397–17, 1997–9 I.R.B.2397–18, 1997–10 I.R.B.6797–19, 1997–10 I.R.B.6897–20, 1997–11 I.R.B.2297–21, 1997–11 I.R.B.2397–22, 1997–12 I.R.B.4797–23, 1997–11 I.R.B.2397–24, 1997–11 I.R.B.2497–25, 1997–12 I.R.B.4797–26, 1997–12 I.R.B.4897–27, 1997–13 I.R.B.3097–28, 1997–14 I.R.B.1597–29, 1997–14 I.R.B.1697–30, 1997–14 I.R.B.1697–31, 1997–14 I.R.B.1697–32, 1997–14 I.R.B.1797–33, 1997–15 I.R.B.897–34, 1997–15 I.R.B.897–35, 1997–15 I.R.B.997–36, 1997–15 I.R.B.1097–37, 1997–15 I.R.B.1097–38, 1997–15 I.R.B.10

Notices:

97–1, 1997–2 I.R.B.2297–2, 1997–2 I.R.B.2297–3, 1997–1 I.R.B.897–4, 1997–2 I.R.B.2497–5, 1997–2 I.R.B.2597–6, 1997–2 I.R.B.2697–7, 1997–1 I.R.B.897–8, 1997–4 I.R.B.797–9, 1997–2 I.R.B.3597–10, 1997–2 I.R.B.4197–11, 1997–2 I.R.B.5097–12, 1997–3 I.R.B.1197–13, 1997–6 I.R.B.1397–14, 1997–8 I.R.B.2397–15, 1997–8 I.R.B.2397–16, 1997–9 I.R.B.1597–17, 1997–10 I.R.B.3497–18, 1997–10 I.R.B.3597–19, 1997–10 I.R.B.4097–20, 1997–10 I.R.B.5297–21, 1997–11 I.R.B.997–22, 1997–13 I.R.B.997–23, 1997–14 I.R.B.8

Proposed Regulations:

REG–209332–80, 1997–14 I.R.B.9REG–209040–88, 1997–7 I.R.B.34REG–209121–89, 1997–11 I.R.B.15REG–208288–90, 1997–11 I.R.B.14REG–209494–90, 1997–8 I.R.B.24REG–208172–91, 1997–10 I.R.B.59REG–209672–93, 1997–6 I.R.B.15REG–209709–94 1997–13 I.R.B.12REG–209729–94, 1997–11 I.R.B.19REG–209762–95, 1997–3 I.R.B.12REG–209817–96, 1997–7 I.R.B.41REG–209824–96, 1997–11 I.R.B.19REG–254394–96, 1997–14 I.R.B.14REG–209828–96, 1997–6 I.R.B.15REG–209830–96, 1997–15 I.R.B.7REG–209834–96, 1997–4 I.R.B.9REG–209839–96, 1997–8 I.R.B.26REG–242996–96, 1997–9 I.R.B.18REG–246018–96, 1997–8 I.R.B.30REG–247678–96, 1997–6 I.R.B.17REG–247862–96, 1997–8 I.R.B.32REG–248770–96, 1997–8 I.R.B.33REG–249819–96, 1997–7 I.R.B.50REG–252231–96, 1997–7 I.R.B.52REG–252233–96, 1997–9 I.R.B.19REG–252665–96, 1997–12 I.R.B.46

Revenue Procedures:

97–1, 1997–1 I.R.B.1197–2, 1997–1 I.R.B.6497–3, 1997–1 I.R.B.8497–4, 1997–1 I.R.B.9697–5, 1997–1 I.R.B.13297–6, 1997–1 I.R.B.15397–7, 1997–1 I.R.B.18597–8, 1997–1 I.R.B.18797–9, 1997–2 I.R.B.5697–10, 1997–2 I.R.B.5997–11, 1997–6 I.R.B.1397–12, 1997–4 I.R.B.797–13, 1997–5 I.R.B.1897–14, 1997–5 I.R.B.2097–15, 1997–5 I.R.B.2197–16, 1997–5 I.R.B.2597–17, 1997–9 I.R.B.1597–18, 1997–10 I.R.B.5397–19, 1997–10 I.R.B.5597–20, 1997–11 I.R.B.1097–21, 1997–12 I.R.B.4497–22, 1997–13 I.R.B.9

Revenue Rulings:

97–1, 1997–2 I.R.B.1097–2, 1997–2 I.R.B.797–3, 1997–2 I.R.B.597–4, 1997–3 I.R.B.697–5, 1997–4 I.R.B.597–6, 1997–4 I.R.B.497–7, 1997–5 I.R.B.1497–8, 1997–7 I.R.B.497–9, 1997–9 I.R.B.497–10, 1997–10 I.R.B.3197–11, 1997–10 I.R.B.597–12, 1997–11 I.R.B.597–14, 1997–11 I.R.B.597–15, 1997–12 I.R.B.4297–16, 1997–13 I.R.B.497–17, 1997–14 I.R.B.597–18, 1997–15 I.R.B.4

Social Security Domestic Coverage Threshold

1997–9, I.R.B.17

Treasury Decisions:

8688, 1997–3 I.R.B.78689, 1997–3 I.R.B.98690, 1997–5 I.R.B.58691, 1997–5 I.R.B.168692, 1997–3 I.R.B.48693, 1997–6 I.R.B.98694, 1997–6 I.R.B.118695, 1997–4 I.R.B.58696, 1997–6 I.R.B.48697, 1997–2 I.R.B.118698, 1997–7 I.R.B.298699, 1997–6 I.R.B.48700, 1997–7 I.R.B.58701, 1997–7 I.R.B.238702, 1997–8 I.R.B.48703, 1997–8 I.R.B.188704, 1997–8 I.R.B.128705, 1997–8 I.R.B.168706, 1997–9 I.R.B.118707, 1997–7 I.R.B.178708, 1997–10 I.R.B.148709, 1997–9 I.R.B.58710, 1997–13 I.R.B.48711, 1997–12 I.R.B.358712, 1997–12 I.R.B.48713, 1997–14 I.R.B.48714, 1997–15 I.R.B.5

1A cumulative list of all Revenue Rulings,Revenue Procedures, Treasury Decisions, etc.,published in Internal Revenue Bulletins 1996–27through 1996–53 will be found in InternalRevenue Bulletin 1997–1, dated January 6, 1997.

31

Finding List of Current Action onPreviously Published Items1

Bulletin 1997–1 through 1997–15

*Denotes entry since last publication

Revenue Procedures:

66–3Modified by97–11, 1997–6 I.R.B.13

87–21Modified by97–11, 1997–6 I.R.B.13

92–20Modified by97–1, 1997–1 I.R.B.11

92–20Modified by97–10, 1997–2 I.R.B.59

92–90Superseded by97–1, 1997–1 I.R.B.11

94–52Revoked by97–11, 1997–6 I.R.B.13

96–1Superseded by97–1, 1997–1 I.R.B.11

96–2Superseded by97–2, 1997–1 I.R.B.64

96–3Superseded by97–3, 1997–1 I.R.B.84

96–4Superseded by97–4, 1997–1 I.R.B.96

96–5Superseded by97–5, 1997–1 I.R.B.132

96–6Superseded by97–6, 1997–1 I.R.B.153

96–7Superseded by97–7, 1997–1 I.R.B.185

96–8Superseded by97–8, 1997–1 I.R.B.187

97–2Amplified by97–21, 1997–12 I.R.B.44

Revenue Rulings:

70–480Revoked by97–6, 1997–4 I.R.B.4

72–527Obsoleted by8704, 1997–8 I.R.B.12

Revenue Rulings—Continued

74–59Revoked by8708, 1997–10 I.R.B.14

92–19Supplemented in part by97–2, 1997–2 I.R.B.7

96–12Superseded by97–3, 1997–1 I.R.B.84

96–13Modified by97–1, 1997–1 I.R.B.11

96–22Superseded by97–3, 1997–1 I.R.B.84

96–34Superseded by97–3, 1997–1 I.R.B.84

96–39Superseded by97–3, 1997–1 I.R.B.84

96–43Superseded by97–3, 1997–1 I.R.B.84

96–56Superseded by97–3, 1997–1 I.R.B.84

1A cumulative finding list for previously publisheditems mentioned in Internal Revenue Bulletins1996–27 through 1996–53 will be found in Inter-nal Revenue Bulletin 1997–1, dated January 6,1997.

32