US Internal Revenue Service: Irb04-03

Bulletin No.
2004-3
January 20, 2004
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX ADMINISTRATIVE
Rev. Rul. 2004–5, page 295. Notice 2004–6, page 308.

Charitable deductions. This ruling concludes that a trust is Capitalization, business expenses, tangible property.
not prohibited from taking a charitable deduction under sec- The Service and Treasury Department intend to propose
tion 642(c) of the Code for the trust’s distributive share of a regulations that clarify the application of sections 162 and
charitable contribution made by a partnership from the partner- 263 of the Code to expenditures paid or incurred to repair,
ship’s gross income even though the trust’s governing instru- improve, or rehabilitate tangible property. This notice requests
ment does not authorize the trustee to make charitable contri- comments on issues relating to such expenditures by March
butions. 1, 2004.
T.D. 9100, page 297. Notice 2004–7, page 310.

REG–116664–01, page 319. Charitable contributions; intellectual property. This no-
Final, temporary, and proposed regulations under section 6011 tice advises taxpayers that, in appropriate cases, the Service
of the Code are designed to eliminate regulatory impediments intends to disallow improper charitable contribution deductions
to the electronic filing of certain income tax returns and other claimed by taxpayers in connection with the transfer of patents
forms. or other intellectual property to charitable organizations. In par-
ticular, the IRS has become aware of purported charitable con-
T.D. 9103, page 306. tributions of intellectual property in which one or more of the
Final regulations under section 6045 of the Code provide that following issues (which may affect the availability or amount of
brokers must file information returns and furnish information a deduction) are present: 1) transfer of a nondeductible partial
statements to individuals who receive substitute payments in interest in intellectual property; 2) the taxpayer’s expectation
lieu of dividends on or after January 1, 2003. or receipt of a benefit in exchange for the transfer; 3) inade-
quate substantiation of the contribution; and 4) overvaluation
of the intellectual property transferred.
EMPLOYMENT TAX
Rev. Proc. 2004–11, page 311.
This procedure provides an automatic consent procedure al-
Announcement 2004–2, page 322. lowing a taxpayer to make a change in method of accounting
The Service announces a new reporting code to be used begin- for certain depreciable or amortizable property after its dispo-
ning with the 2004 Form W–2. Employer contributions to an sition, waives the two-year rule in Rev. Rul. 90–38 with respect
employee’s Health Savings Account (HSA) must be reported on to certain changes in depreciation or amortization, and modi-
Form W–2 in box 12 using Code W. fies other revenue procedures to conform with regulations sec-
tion 1.446–1T(e)(2)(ii)(d). Rev. Procs. 2000–38, 2000–50,
and 2002–9 modified.
Announcements of Disbarments and Suspensions begin on page 322.

Finding Lists begin on page ii.
The IRS Mission
Provide America’s taxpayers top quality service by helping applying the tax law with integrity and fairness to all.
them understand and meet their tax responsibilities and by
Introduction
The Internal Revenue Bulletin is the authoritative instrument of court decisions, rulings, and procedures must be considered,
the Commissioner of Internal Revenue for announcing official and Service personnel and others concerned are cautioned
rulings and procedures of the Internal Revenue Service and for against reaching the same conclusions in other cases unless
publishing Treasury Decisions, Executive Orders, Tax Conven- the facts and circumstances are substantially the same.
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
The Bulletin is divided into four parts as follows:
Superintendent of Documents on a subscription basis. Bul-
letin contents are consolidated semiannually into Cumulative
Bulletins, which are sold on a single-copy basis. Part I.—1986 Code.
This part includes rulings and decisions based on provisions of
It is the policy of the Service to publish in the Bulletin all sub- the Internal Revenue Code of 1986.
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod- Part II.—Treaties and Tax Legislation.
ify, or amend any of those previously published in the Bulletin. This part is divided into two subparts as follows: Subpart A,
All published rulings apply retroactively unless otherwise indi- Tax Conventions and Other Related Items, and Subpart B, Leg-
cated. Procedures relating solely to matters of internal man- islation and Related Committee Reports.
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published. Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
Revenue rulings represent the conclusions of the Service on the included in this part are Bank Secrecy Act Administrative Rul-
application of the law to the pivotal facts stated in the revenue ings. Bank Secrecy Act Administrative Rulings are issued by
ruling. In those based on positions taken in rulings to taxpayers the Department of the Treasury’s Office of the Assistant Sec-
or technical advice to Service field offices, identifying details retary (Enforcement).
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements. Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be The last Bulletin for each month includes a cumulative index
relied on, used, or cited as precedents by Service personnel in for the matters published during the preceding months. These
the disposition of other cases. In applying published rulings and monthly indexes are cumulated on a semiannual basis, and are
procedures, the effect of subsequent legislation, regulations, published in the last Bulletin of each semiannual period.*
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.
* Beginning with Internal Revenue Bulletin 2003–43, we are publishing the index at the end of the month, rather than at the beginning.
January 20, 2004 2004-3 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 170.—Charitable, from taking a charitable deduction under without regard to § 170(c)(2)(A)). The de-
etc., Contributions and Gifts section 642(c) of the Code for the trust’s duction is in lieu of the charitable deduc-
distributive share of a charitable contri- tion allowed by § 170(a).
Is a charitable deduction under section 642(c) for
bution made by a partnership from the A trust subject to §§ 651 and 652 is
a trust’s distributive share of a charitable contribution
made by a partnership from the partnership’s gross in-
partnership’s gross income even though known as a simple trust. A trust that is
come prohibited because the trust’s governing instru- the trust’s governing instrument does not not a simple trust is known as a complex
ment does not authorize the trustee to make charitable authorize the trustee to make charitable trust and is subject to the provisions of
contributions? See Rev. Rul. 2004-5, page 295. contributions. §§ 661–663. Section 1.651(a)–1 of the
Income Tax Regulations provides that a
Rev. Rul. 2004–5 trust may be a simple trust for one year and
Regulations eliminate impediments to the elec-
a complex trust for another year.
tronic filing of certain income tax returns and other
ISSUE Under § 651(a), the terms of a simple
forms. See T.D. 9100, page 297.
trust (1) provide that all of the trust’s in-
Is a charitable deduction under § 642(c) come is to be distributed currently and (2)
Section 446.—General Rule of the Internal Revenue Code for a trust’s do not provide that any amounts are to be
for Methods of Accounting distributive share of a charitable contribu- paid, permanently set aside, or used for the
tion made by a partnership from the part- charitable purposes specified in § 642(c).
26 CFR 1.446-1T: General rule for methods of ac- nership’s gross income prohibited because Under § 1.651(a)–4, a trust is not consid-
counting (temporary). the trust’s governing instrument does not ered to be a trust that may pay, permanently
authorize the trustee to make charitable set aside, or use any amount for charitable
If a taxpayer used an impermissible method of ac-
counting for depreciation or amortization for certain
contributions? purposes for any taxable year in which the
depreciable or amortizable property that has been dis- trust is not allowed a charitable deduction
posed of by the taxpayer, is a change to a permissible FACTS
under § 642(c).
method of accounting for depreciation or amortiza-
The governing instrument of trust TR Section 702(a)(4) provides that in deter-
tion for that property after its disposition a change in
provides that all the income is to be dis- mining a partner’s income tax, each part-
method of accounting under §446(e) of the Internal
Revenue Code? See Rev. Proc. 2004-11, page 311. tributed annually to A for life and upon A’s ner shall take into account separately the
death, TR will terminate and all the assets partner’s distributive share of the partner-
will pass to B. TR’s governing instrument ship’s charitable contributions (as defined
Section 556.—Undistributed does not authorize the trustee to make char- in § 170(c)).
Foreign Personal Holding itable contributions. Section 1.702–1(a)(4) provides that
Company Income One of TR’s assets is an interest in part- each partner shall take into account, as
nership PRS. During the taxable year, PRS part of the charitable contributions paid
contributes cash from its gross income to a by the partner, the partner’s distributive
forms. See T.D. 9100, page 297. charitable organization for a purpose spec- share of each class of charitable contribu-
ified in § 170(c). None of TR’s income for tions paid by the partnership within the
the taxable year is “unrelated business in- partnership’s taxable year. Section 170
Section 565.—Consent come” within the meaning of § 681(a). In determines the extent to which the amount
Dividends computing its income tax for the taxable may be allowed as a deduction to the part-
year, TR takes into account its distributive ner.
share of PRS’s income, gain, loss, deduc- Section 1.702–1(b) provides that the
forms. See T.D. 9100, page 297. tions (including charitable contributions), character in the hands of a partner of any
and credits. item of income, gain, loss, deduction, or
credit described in § 702(a)(1) through (8)
Section 642.—Special LAW AND ANALYSIS shall be determined as if that item were re-
Rules for Credits and alized directly from the source from which
Deductions Section 642(c)(1) provides that a trust realized by the partnership or incurred in
(other than a trust subject to §§ 651 and the same manner as incurred by the part-
26 CFR 1.642(c)–1: Unlimited deduction for 652) is allowed a deduction in computing nership.
amounts paid for a charitable purpose.
(Also §§ 170, 651, 652, 681, 702; 1.651(a)–1,
its taxable income for any amount of the Section 1.702–1(c)(1) provides that if
1.651(a)–4, 1.702–1.) gross income, without limitation, that pur- it is necessary to determine the amount or
suant to the terms of the governing instru- character of the gross income of a part-
Charitable deductions. This ruling ment is, during the taxable year, paid for a ner, the partner’s gross income shall in-
concludes that a trust is not prohibited purpose specified in § 170(c) (determined clude the partner’s distributive share of the
2004-3 I.R.B. 295 January 20, 2004

gross income of the partnership, that is, the HOLDING Section 702.—Income and
amount of gross income of the partnership Credits of Partner
from which was derived the partner’s dis- A charitable deduction under § 642(c)
tributive share of partnership taxable infor a trust’s distributive share of a chari- 26 CFR 1.702-1: Income and credits of partner.
come or loss (including items described in table contribution made by a partnership Is a charitable deduction under section 642(c) for
§ 702(a)(1) through (8)). from the partnership’s gross income is not a trust’s distributive share of a charitable contribution
For a trust to claim a charitable deduc- prohibited even though the trust’s gov- made by a partnership from the partnership’s gross in-
tion under § 642(c) for amounts of gross erning instrument does not authorize the come prohibited because the trust’s governing instru-
income that it contributes for charitable trustee to make charitable contributions. ment does not authorize the trustee to make charitable
purposes, the governing instrument of the contributions? See Rev. Rul. 2004-5, page 295.
trust must give the trustee the authority DRAFTING INFORMATION
to make charitable contributions. This re- Section 936.—Puerto Rico
quirement is an essential element to qual- The principal author of this revenue and Possession Tax Credit
ify the trust to claim a deduction for a ruling is Charlotte Chyr of the Associate
charitable contribution made directly by Chief Counsel (Passthroughs & Special In- Regulations eliminate impediments to the elec-
the trust. In the case of a trust’s invest- dustries). For further information regard- tronic filing of certain income tax returns and other
ment in a partnership, the partnership may ing this revenue ruling, contact Charlotte forms. See T.D. 9100, page 297.
make a charitable contribution from the Chyr at (202) 622–3080 (not a toll-free
partnership’s gross income, and that in- call). Section 1016.—Adjustment
come is never available to the trust. For
to Basis
federal tax purposes, however, the trust
must take into account its distributive share Section 651.—Deduction 26 CFR 1.1016-3T: Exhaustion, wear and tear, ob-
of the partnership’s income, gain, loss, for Trusts Distributing solescence, amortization, and depletion for periods
deductions (including charitable contribu- Current Income Only since February 28, 1913 (temporary).
tions), and credits. Under these circum-
Whether § 1016(a)(2) of the Internal Revenue
stances, a trust’s deduction for its distribu- 26 CFR 1.651(a)-1: Simple trusts; deductions for dis- Code permanently affects a taxpayer’s lifetime in-
tive share of a charitable contribution made tributions; in general. come for purposes of determining whether a change
by a partnership will not be disallowed un- 26 CFR 1.651(a)-4: Charitable purposes. in depreciation or amortization is a change in method
der § 642(c) merely because the trust’s of accounting under § 446(e)? See Rev. Proc.
governing instrument does not authorize 2004-11, page 311.
the trustee to make charitable contribu- made by a partnership from the partnership’s gross in-
tions. See Estate of Bluestein v. Commis-
sioner, 15 T.C. 770 (1950), acq., 1951–1
come prohibited because the trust’s governing instru- Section 1017.—Discharge
ment does not authorize the trustee to make charitable
C.B. 1, and Estate of Lowenstein v. Com- contributions? See Rev. Rul. 2004-5, page 295.
of Indebtedness
missioner 12 T.C. 694 (1949), acq. 1949–2 Regulations eliminate impediments to the elec-
C.B. 2, aff’d sub nom, First National Bank tronic filing of certain income tax returns and other
of Mobile v. Commissioner, 183 F.2d 172 Section 652.—Inclusion forms. See T.D. 9100, page 297.
(5th Cir. 1950), reaching similar conclu- of Amounts in Gross
sions under the statutory predecessor to Income of Beneficiaries of
§ 642(c). Trusts Distributing Current Section 1368.—Distri-
In the present situation, PRS’s charita- Income Only butions
ble contribution is made from PRS’s gross Regulations eliminate impediments to the elec-
income. TR is allowed a charitable deduc- tronic filing of certain income tax returns and other
tion for its distributive share of this contri- made by a partnership from the partnership’s gross in-
bution, even though TR’s governing instru- come prohibited because the trust’s governing instru-
ment does not authorize the trustee to make ment does not authorize the trustee to make charitable
charitable contributions. Because none of contributions? See Rev. Rul. 2004-5, page 295.
Section 1377.—Definitions
TR’s income for the taxable year would and Special Rule
be considered “unrelated business income” Regulations eliminate impediments to the elec-
for purposes of § 681(a), the amount of the Section 681.—Limitation on tronic filing of certain income tax returns and other
charitable deduction is not limited under Charitable Deduction forms. See T.D. 9100, page 297.
§ 681. TR is a complex trust for the tax-
able year because it is allowed a charitable
deduction under § 642(c) for that year.
a trust’s distributive share of a charitable contribution Section 1502.—Regulations
made by a partnership from the partnership’s gross in-
The same result would apply if TR were come prohibited because the trust’s governing instru- Regulations eliminate impediments to the elec-
always a complex trust because it was not ment does not authorize the trustee to make charitable tronic filing of certain income tax returns and other
required to distribute all its income cur- contributions? See Rev. Rul. 2004-5, page 295. forms. See T.D. 9100, page 297.
rently.
January 20, 2004 296 2004-3 I.R.B.

Section 1503.—Computa- SUPPLEMENTARY INFORMATION: RRA 1998 requires the IRS to establish a
tion and Payment of Tax 10-year strategic plan to eliminate barriers
Paperwork Reduction Act to electronic filing. On January 30, 2003,
Regulations eliminate impediments to the elec- the IRS published final regulations (T.D.
tronic filing of certain income tax returns and other These regulations are being issued 9040, 2003–10 I.R.B. 568) eliminating a
forms. See T.D. 9100, page 297. without prior notice and public procedure number of regulatory impediments to the
pursuant to the Administrative Procedure electronic filing of Form 1040, “U.S. Indi-
Act (5 U.S.C. 553). For this reason, the
Section 6011.—General collection of information contained in
vidual Income Tax Return.”
Requirement of Return, these regulations has been reviewed and
The IRS has identified a number of reg-
Statement, or List pending receipt and evaluation of pub-
ulatory provisions that impede the ability
of business entities to file returns electroni-
26 CFR 1.6011–1: General requirement of return, lic comments, approved by the Office of cally. Some of these regulations, for exam-
statement, or list. Management and Budget under control ple, impede electronic filing by requiring
number 1545–1868. Responses to this taxpayers to include third-party signatures
T.D. 9100 collection of information are mandatory. on their tax returns or by requiring tax-
An agency may not conduct or sponsor, payers to attach documents or statements
DEPARTMENT OF and a person is not required to respond generated by a third party. Others require
THE TREASURY to, a collection of information unless the a taxpayer to sign an IRS form and file it
collection of information displays a valid as an attachment to the taxpayer’s income
Internal Revenue Service control number.
26 CFR Parts 1, 301 and 602 tax return. These regulations eliminate the
For further information concerning this impediments for taxable years beginning
collection of information, and where to after December 31, 2002. The regulations
Guidance Necessary to submit comments on the collection of in- generally affect taxpayers who must file
Facilitate Business Electronic formation and the accuracy of the esti- any of the following forms: Form 926,
Filing mated burden, and suggestions for reduc- “Return by a U.S. Transferor of Property
ing this burden, please refer to the pream- to a Foreign Corporation”; Form 972,
AGENCY: Internal Revenue Service ble to the cross-referencing notice of pro- “Consent of Shareholder To Include Spe-
(IRS), Treasury. posed rulemaking published in this issue of cific Amount in Gross Income”; Form 973,
the Bulletin. “Corporation Claim for Deduction for
ACTION: Final and temporary regula- Books and records relating to a collec- Consent Dividends”; Form 982, “Reduc-
tions. tion of information must be retained as tion of Tax Attributes Due to Discharge of
long as their contents may become mate- Indebtedness (and Section 1082 Basis Ad-
SUMMARY: This document contains reg- rial in the administration of any internal justment)”; Form 1120, “U.S. Corporation
ulations designed to eliminate regulatory revenue law. Generally, tax returns and tax Income Tax Return”; Form 1120S, “U.S.
impediments to the electronic filing of cer- return information are confidential, as re- Income Tax Return for an S Corporation”;
tain income tax returns and other forms. quired by 26 U.S.C. 6103. Form 1122, “Authorization and Consent of
These regulations affect business taxpay-
Subsidiary Corporation To Be Included in
ers who file income tax returns electron- Background
a Consolidated Income Tax Return”; Form
ically. The text of the temporary regula-
This document contains amendments to 5471, “Information Return of U.S. Persons
tions also serves as the text of the proposed
the Income Tax Regulations (26 CFR part With Respect To Certain Foreign Corpo-
regulations (REG–116664–01) set forth in
1) and the Procedure and Administration rations”; Form 5712–A, “Election and
this issue of the Bulletin.
Regulations (26 CFR part 301) designed Verification of the Cost Sharing or Profit
DATES: Effective Date: These regulations to eliminate regulatory impediments to the Split Method Under Section 936(h)(5)”;
are effective on December 19, 2003. electronic submission of tax returns and and Form 8832, “Entity Classification
Applicability Date: These regulations other forms filed by corporations, partner- Election.”
apply with respect to taxable years be- ships and other businesses.
Explanation of Provisions
ginning after December 31, 2002. The In 1998, Congress enacted the Inter-
applicability of §§1.170A–11T, 1.556–2T, nal Revenue Service Restructuring and Re- 1. Form 926: Return by a U.S. Transferor
1.565–1T, 1.936–7T, 1.1017–1T, form Act of 1998 (RRA 1998), Public Law of Property to a Foreign Corporation
1.1368–1T, 1.1377–1T, 1.1502–21T, 105–206 (112 Stat. 685) (1998). In rel-
1.1502–75T, 1.1503–2T, 1.6038B–1T, evant part, RRA 1998 states that the pol- Section 6038B provides that transferors
and 301.7701–3T will expire on or before icy of Congress is to promote the paper- of property to foreign corporations must,
December 18, 2006. less filing of Federal tax returns. Section in certain circumstances, file information
2001(a) of RRA 1998 sets a long-range returns with the Secretary regarding such
FOR FURTHER INFORMATION goal for the IRS to have at least 80 per- transactions. Section 1.6038B–1(b)(1)(i)
CONTACT: Nathan Rosen, (202) cent of all Federal tax returns filed elec- requires the transferor to file the return on
622–4910 (not a toll-free number). tronically by 2007. Section 2001(b) of Form 926 as an attachment to its income
2004-3 I.R.B. 297 January 20, 2004

tax return. Under §1.6038B–1(b)(1)(i) and 4. Form 982: Reduction of Tax Attributes tions to file annual certifications with
(ii), filers of Form 926 must sign the form Due to Discharge of Indebtedness (and respect to dual consolidated losses. The
and attachments to the form are subject to Section 1082 Basis Adjustment) annual certification must be signed un-
the declaration under penalties of perjury der penalties of perjury by the person
that the information submitted is true, cor- Section 1017 provides for basis reduc- who signs the corporation’s income tax
rect, and complete. The signature require- tions when income from discharge of in- return. The signature requirements in
ment impedes electronic filing of the trans- debtedness is excluded from gross income. §1.1503–2(g)(2)(i), (g)(2)(iv)(B)(3)(iii),
feror’s income tax return because Form If a partnership has income from discharge and (g)(2)(vi)(B) impede electronic filing
926 cannot yet be signed electronically. of indebtedness, §1.1017(g) permits its of the corporation’s income tax return
These regulations eliminate the obligation partners to request that the partnership because neither the agreement nor the
to sign Form 926 and provide, instead, that reduce the basis of partnership deprecia- annual certification can be signed elec-
Form 926 and any attachments to the form ble property with respect to the partners. tronically. These regulations eliminate the
are verified by signing the income tax re- Section 1.1017–1(g)(2)(iii)(A) requires a obligations under §1.1503–2(g)(2)(i) and
turn with which the form and attachments partnership that consents to this basis re- (iv)(B)(3)(iii) to attach a signed agreement
are filed. duction to prepare a statement describing, and provide, instead, that an unsigned
among other things, the amount of the copy of the agreement may be submitted
2. Form 972: Consent of Shareholder To reduction. Section 1.1017–1(g)(2)(iii)(B) with the corporation’s income tax return if
Include Specific Amount in Gross Income requires the affected partners to attach a the corporation retains the signed original
copy of that statement to their income tax in its records. These regulations also elim-
Section 565 allows a corporation and its returns. inate the obligation under §1.1503–2(g)(2)
shareholders to treat certain hypothetical Requiring partners to attach the partner- (vi)(B) to sign the annual certification and
corporate distributions as actual dividends. ship consent statement impedes the elec- provide, instead, that the annual certifica-
Section 1.565–1(b)(1) requires sharehold- tronic filing of their income tax returns be- tion is verified by signing the income tax
ers to use Form 972 to elect such treat- cause the partnership statement cannot yet return with which the certification is filed.
ment and requires each consenting share- be incorporated into all electronic returns. Section 170 addresses the tax de-
holder (or an authorized agent) to sign To remedy this impediment, these regula- ductibility of charitable contributions and
the form. Section 1.565–1(b)(3) requires tions eliminate the obligation to attach the gifts. Section 1.170A–11(b)(1) provides
the corporation to attach the signed Form partnership consent statement and provide, that, under certain conditions, corpora-
972 to its income tax return for the tax- instead, that taxpayers must retain the con- tions may treat a charitable contribution as
able year in which it claims the dividends sent statement in their records. paid during a taxable year even if the con-
paid deduction for the hypothetical divi- tribution occurs in the following taxable
dends. Requiring corporations to attach 5. Form 1120: U.S. Corporation Income year. A corporation claiming a charitable
a signed Form 972 impedes electronic fil- Tax Return deduction for a taxable year under this
ing of their income tax returns because provision must attach a copy of the resolu-
third-party signatures cannot be incorpo- Section 1503 prescribes certain rules tion of the board of directors authorizing
rated into an electronic return. These reg- for computing tax for corporations filing the contribution to its return for the year.
ulations provide that an unsigned copy of consolidated returns. Section 1.1503–2(g) In addition, the corporation must attach a
Form 972 may be submitted with the cor- permits dual consolidated losses of dual declaration, signed under penalties of per-
poration’s income tax return if the cor- resident corporations to offset the income jury, that the resolution was adopted during
poration retains the signed original in its of domestic affiliates under specified cir- the taxable year. See §1.170A–11(b)(2).
records. cumstances, including entry into an agree- Requiring taxpayers to attach a signed
ment described in §1.1503–2(g)(2)(i). declaration impedes electronic filing of
3. Form 973: Corporation Claim for The corporation entering into the agree- Form 1120 because the declaration cannot
Deduction for Consent Dividends ment must attach the agreement to its be signed electronically. The regulations
timely filed U.S. income tax return for eliminate the requirement of a signed
A corporation uses Form 973 to claim the taxable year in which the loss is in- declaration and provide, instead, that the
the dividend treatment permitted by sec- curred. The agreement must be signed declaration is verified by signing the re-
tion 565. Section 1.565–1(b)(3) requires under penalties of perjury by the person turn. The regulations also slightly expand
the corporation to sign Form 973 under who signs the income tax return. Section the content of the declaration by requiring
penalties of perjury and submit the form 1.1503–2(g)(2)(iv)(B)(3)(iii) also requires that it state the date on which the board
with its tax return. This signature require- a successor corporation to file an agree- of directors authorized the contribution.
ment impedes electronic filing of a corpo- ment described in §1.1503–2(g)(2)(i) to Requiring taxpayers to attach a copy of
ration’s income tax return because Form prevent recapture of the dual consoli- the resolution authorizing the contribution
973 cannot yet be signed electronically. dated loss in certain circumstances. The may also impede electronic filing of Form
These regulations eliminate the obligation new agreement must be signed under 1120 because including the resolution in-
to sign Form 973 and provide, instead, that penalties of perjury by the person who creases the size of the electronic return file
Form 973 is verified by signing the income signs the income tax return. Section in a potentially burdensome manner. The
tax return with which the form is filed. 1.1503–2(g)(2)(vi)(B) requires corpora- regulations eliminate this requirement and
January 20, 2004 298 2004-3 I.R.B.

provide, instead, that the resolution must ship changes. Section 1.1368–1(g)(2)(iii) sonal holding company must attach a num-
be retained in the taxpayer’s records. provides that an S Corporation makes ber of items to their income tax returns re-
Section 1.1502–21(b)(3)(i) provides this election by attaching a statement, lating to property the company owns or op-
that a consolidated group of corporations signed by an officer of the corporation, erates. In particular, §1.556–2(e)(2)(vii)
may elect to relinquish carryback treat- to its income tax return for the relevant requires certain shareholders to attach a
ment with respect to a consolidated net taxable year. This signature require- copy of the contract, lease or rental agree-
operating loss for any consolidated return ment impedes electronic filing of Form ment covering the property. A shareholder
year. The consolidated group elects this 1120S because the statement described attaches these items to Form 5471, and in
treatment by attaching a statement to the in §1.1368–1(g)(2)(iii) cannot be signed turn attaches that form to its return. Re-
group’s income tax return for the relevant electronically. These regulations eliminate quiring shareholders to attach a copy of
year. The regulations require the state- the signature requirement and permit the these documents to an income tax return
ment to be signed by the common parent. election to be made in an unsigned state- impedes electronic filing because the doc-
This signature requirement impedes elec- ment that is verified by signing the return. uments cannot yet be incorporated into
tronic filing of Form 1120 because the Section 1.1368–1(f) allows an S cor- all electronic returns. These regulations
statement cannot be signed electronically. poration to make certain elections relating eliminate this requirement and provide, in-
These regulations eliminate the signature to the source of its distributions. Section stead, that a copy of the contract, lease or
requirement and permit the election to be 1.1368–1(f)(5)(iii) provides that an S cor- rental agreement must be retained in the
made in an unsigned statement. poration makes these elections by attach- shareholder’s records.
Section 1.1502–21(b)(3)(ii)(B) pro- ing a statement containing specified infor-
vides that a group of corporations acquir- mation to its income tax return. An offi- 9. Form 5712–A: Election and Verification
ing a new member may elect to relinquish cer of the corporation must sign the state- of the Cost Sharing or Profit Split Method
part of the carryback period with respect ment under penalties of perjury. This sig- Under Section 936(h)(5)
to certain net operating losses of the new nature requirement impedes electronic fil-
Section 1.936–7(a), Q&A 1 provides
member. The election is made in a state- ing of Form 1120S because the statement
that a possessions corporation makes the
ment attached to the group’s income tax described in §1.1368–1(f)(5)(iii) cannot be
election under section 936(h)(5) to use the
return. The statement must be signed by signed electronically. These regulations
cost sharing or profit split method by filing
the common parent, the new member, and eliminate the signature requirement and
a signed Form 5712-A that includes a dec-
any other corporation joining the group permit the election to be made in an un-
laration that all affiliated group members
with the new member. This signature signed statement that is verified by signing
have consented to the election. The elect-
requirement impedes electronic filing of the return.
ing corporation attaches the Form 5712-A
Form 1120 because third-party signatures
7. Form 1122: Authorization and Consent to Form 5735, “Possessions Corporation
cannot be incorporated into an electronic
of Subsidiary Corporation To Be Included Tax Credit,” which in turn must be attached
return. These regulations eliminate the
in a Consolidated Income Tax Return to the corporation’s income tax return. Re-
signature requirement and permit the elec-
quiring taxpayers to sign Form 5712–A
tion to be made in an unsigned statement.
Section 1.1502–75(h)(2) provides that, impedes electronic filing of corporate in-
when an affiliated group of corporations come tax returns because Form 5712–A
6. Form 1120S: U.S. Income Tax Return
files a consolidated return for the first time, cannot yet be signed electronically. These
for an S Corporation
each subsidiary must consent to the filing regulations eliminate the signature require-
by signing Form 1122 and the signed con- ment and permit the election to be made
Section 1377 provides that under cer-
sent forms must be attached to the con- using an unsigned Form 5712–A that is
tain circumstances an S Corporation may
solidated return. Requiring the group to verified by signing the return.
elect to treat a taxable year as if it consisted
file signed consent forms impedes elec-
of two separate taxable years. Section 10. Form 8832: Entity Classification
tronic filing of consolidated returns be-
1.1377–1(b)(5) provides that an S Corpo- Election
cause Form 1122 cannot yet be signed
ration elects this treatment by attaching a
electronically. These regulations retain the
signed statement to its income tax return. An eligible business entity may file
requirement that each subsidiary consent
This signature requirement impedes elec- Form 8832 to specify the way in which it
to filing a consolidated return but elimi-
tronic filing of Form 1120S because the is to be classified for federal tax purposes.
nate the impediment to electronic filing by
statement described in §1.1377–1(b)(5) The form must be signed under penalties
permitting the group to submit unsigned
cannot be signed electronically. These of perjury. Section 301.7701–3(c)(1)(ii)
copies of the consents with its return if it
regulations eliminate the signature re- provides that in certain circumstances the
retains the signed originals in its records.
quirement and permit the election to be entity must attach a copy of Form 8832
made in an unsigned statement that is ver- 8. Form 5471: Information Return of U.S. to its tax or information returns. The re-
ified by signing the return. Persons With Respect to Certain Foreign quirement to attach a copy of Form 8832
Section 1.1368–1(g)(2)(i) provides a Corporations. impedes electronic filing of tax and in-
similar election for purposes of determin- formation returns because a copy of the
ing the treatment of distributions by an S Section 1.556–2(e)(2) provides that cer- signed form cannot yet be incorporated
Corporation in the event of certain owner- tain U.S. shareholders of a foreign per- into all electronic returns. These regula-
2004-3 I.R.B. 299 January 20, 2004

tions provide that the requirement to attach Par. 3. Section 1.170A–11T is added to §1.556–2T Adjustments to taxable income
a copy of Form 8832 to a return may be read as follows: (temporary).
satisfied with an unsigned copy.
§1.170A–11T Limitation on, and (a) through (e)(2)(vi) [Reserved]. For
Special Analyses carryover of, contributions by further guidance, see §1.556–2(a) through
corporations (temporary). (e)(2)(vi).
It has been determined that this Trea- (e)(2)(vii) In the case of a return for
sury decision is not a significant regula- (a) [Reserved]. For further guidance, a taxable year beginning before January
tory action as defined in Executive Order see §1.170A–11(a). 1, 2003, a copy of the contract, lease, or
12866. Therefore, a regulatory assessment (b) Election by corporations on an ac- rental agreement;
is not required. It also has been deter- crual method—(1) [Reserved]. For further (e)(2)(viii) through (xi) [Reserved]. For
mined that section 553(b) of the Admin- guidance, see §1.170A–11(b)(1). further guidance, see §1.556–2(e)(2)(viii)
istrative Procedure Act (5 U.S.C. chapter (2) The election must be made at the through (xi).
5) does not apply to these regulations. For time the return for the taxable year is filed, (3) If the statement described in
the applicability of the Regulatory Flexi- by reporting the contribution on the return. §1.556–2(e)(2) is attached to a taxpayer’s
bility Act (5 U.S.C. chapter 6), refer to the There shall be attached to the return when income tax return for a taxable year be-
Special Analyses section of the preamble filed a written declaration stating that the ginning after December 31, 2002, a copy
to the cross-reference notice of proposed resolution authorizing the contribution was of the applicable contract, lease or rental
rulemaking published in this issue of the adopted by the board of directors during agreement is not required to be submitted
Bulletin. Pursuant to section 7805(f) of the taxable year. For taxable years begin- with the return, but must be retained by the
the Code, these temporary and final regula- ning before January 1, 2003, the declara- taxpayer and kept available for inspection
tions will be submitted to the Chief Coun- tion shall be verified by a statement signed in the manner required by §1.6001–1(e).
sel for Advocacy of the Small Business by an officer authorized to sign the return (f) [Reserved]. For further guidance,
Administration for comment on their im- that it is made under penalties of perjury, see §1.556–2(f).
pact on small business. and there shall also be attached to the re- Par. 6. Section 1.565–1 is amended
turn when filed a copy of the resolution of by revising paragraph (b)(3) to read as fol-
Drafting Information the board of directors authorizing the con- lows:
tribution. For taxable years beginning after
The principal author of these regula- December 31, 2002, the declaration must §1.565–1 General rule.
tions is Nathan Rosen, Office of Associate also include the date of the resolution, the
Chief Counsel (Procedure and Administra- declaration shall be verified by signing the *****
tion), Administrative Provisions and Judi- return, and a copy of the resolution of the (b) * * *
cial Practice Division. board of directors authorizing the contri- (3) [Reserved]. For further guidance,
bution is a record that the taxpayer must see §1.565–1T(b)(3).
***** retain and keep available for inspection in *****
the manner required by §1.6001–1(e). Par. 7. Section 1.565–1T is added to
Adoption of Amendments to the
(c) through (d) [Reserved]. For further read as follows:
Regulations
guidance, see §1.170A–11(c) through (d).
Par. 4. Section 1.556–2 is amended by §1.565–1T General rule (temporary).
Accordingly, 26 CFR parts 1, 301, and
revising paragraph (e)(2)(vii) and adding
602 are amended as follows: (a) through (b)(2) [Reserved]. For fur-
paragraph (e)(3) to read as follows:
ther guidance, see §1.565–1(a) through
PART 1—INCOME TAXES (b)(2).
§1.556–2 Adjustments to taxable income.
(b)(3) A consent may be filed at any
Paragraph 1. The authority citation for ***** time not later than the due date of the cor-
part 1 continues to read in part as follows: (e) * * * poration’s income tax return for the tax-
Authority: 26 U.S.C. 7805 * * * (2) * * * able year for which the dividends paid de-
Par. 2. Section 1.170A–11 is amended (vii) [Reserved]. For further guidance, duction is claimed. With such return, and
by revising paragraph (b)(2) to read as fol- see §1.556–2T(e)(2)(vii) and (3). not later than the due date thereof, the
lows: corporation must file Forms 972 for each
*****
(3) [Reserved]. For further guidance, consenting shareholder, and a return on
§1.170A–11 Limitation on, and carryover
see §1.556–2T(e)(3). Form 973 showing by classes the stock
of, contributions by corporations.
outstanding on the first and last days of the
*****
***** taxable year, the dividend rights of such
Par. 5. Section 1.556–2T is added to
(b) * * * stock, distributions made during the tax-
read as follows:
(2) [Reserved]. For further guidance able year to shareholders, and giving all
see §1.170A–11T(b)(2). the other information required by the form.
For taxable years beginning before Jan-
***** uary 1, 2003, the Form 973 filed with the
January 20, 2004 300 2004-3 I.R.B.

corporation’s income tax return shall con- A. 1: A possessions corporation makes split method, and failure to provide such
tain or be verified by a written declaration an election to use the cost sharing or information shall be treated as a request
that is made under the penalties of per- profit split method by filing Form 5712–A to revoke the election out under section
jury and the Forms 972 filed with the re- (“Election and Verification of the Cost 936(h)(5)(F)(iii).
turn must be duly executed by the consent- Sharing or Profit Split Method Under Sec- Q. & A. 2 through 8 [Reserved]. For
ing shareholders. For taxable years begin- tion 936(h)(5)”) and attaching it to its tax further guidance, see §1.936–7(b), Q. & A.
ning after December 31, 2002, the Form return. Form 5712–A must be filed on or 2 through 8.
973 filed with the corporation’s income tax before the due date (including extensions) (c) and (d) [Reserved]. For further
return shall be verified by signing the re- of the tax return of the possessions corpo- guidance, see §1.936–7(c) and (d).
turn and the Forms 972 filed with the re- ration for its first taxable year beginning Par. 10. Section 1.1017–1 is amended
turn must be duly executed by the consent- after December 31, 1982. The electing by revising paragraph (g)(2)(iii)(B) to read
ing shareholders or, if unsigned, must con- corporation must set forth on the form as follows:
tain the same information as the duly ex- the name and the taxpayer identification
ecuted originals. If the corporation sub- number or address of all members of the §1.1017–1 Basis reductions following a
mits unsigned Forms 972 with its return affiliated group (including foreign affili- discharge of indebtedness.
for a taxable year beginning after Decem- ates not required to file a U.S. tax return).
*****
ber 31, 2002, the duly executed originals All members of the affiliated group must
(g) * * *
are records that the corporation must re- consent to the election. For elections filed
(2) * * *
tain and keep available for inspection in the with respect to taxable years beginning
(iii) * * *
manner required by §1.6001–1(e). before January 1, 2003, an authorized of-
(B) [Reserved]. For further guidance,
(c) [Reserved]. For further guidance, ficer of the electing corporation must sign
see §1.1017–1T(g)(2)(iii)(B).
see §1.565–1(c). the statement of election and must declare
Par. 8. Section 1.936–7 is amended by: that he has received a signed statement of *****
1. Designating the undesignated intro- consent from an authorized officer, direc- Par. 11. Section 1.1017–1T is amended
ductory text as paragraph (a). tor, or other appropriate official of each by revising paragraphs (c) through (i) to
2. Redesignating paragraphs (a) member of the affiliated group. Elections read as follows:
through (c) as paragraphs (b) through filed for taxable years beginning after
§1.1017–1T Basis reductions following a
(d), respectively. December 31, 2002, will incorporate a
discharge of indebtedness (temporary).
3. Revising newly designated para- declaration by the electing corporation
graph (b), Q. & A. 1. that it has received a signed consent from *****
The revision reads as follows: an authorized officer, director, or other (c) through (g)(2)(iii)(A) [Reserved].
appropriate official of each member of For further guidance, see §1.1017–1(c)
§1.936–7 Manner of making election the affiliated group and will be verified through (g)(2)(iii)(A).
under section 936(h)(5); special election by signing the return. The election is not (g)(2)(iii)(B) Taxpayer’s requirement.
for export sales; revocation of election valid for a taxable year unless all affiliates For taxable years beginning before Jan-
under section 936(a). consent. A failure to obtain an affiliate’s uary 1, 2003, statements described in
written consent will not invalidate the §1.1017–1(g)(2)(iii)(A) must be attached
***** election out if the possessions corporation
(b) * * * to a taxpayer’s timely filed (including ex-
made a good faith effort to obtain all the tensions) Federal income tax return for
Q. 1. [Reserved]. For further guidance, necessary consents or the failure to obtain
see §1.936–7T(b) Q. 1. the taxable year in which the taxpayer has
the missing consent was inadvertent. Sub- COD income that is excluded from gross
A. 1. [Reserved]. For further guidance, sequently created or acquired affiliates are
see §1.936–7T(b) A. 1. income under section 108(a). For taxable
bound by the election. If an election out years beginning after December 31, 2002,
***** is revoked under section 936(h)(5)(F)(iii), taxpayers must retain the statements and
Par. 9. Section 1.936–7T is added to a new election out with respect to that keep them available for inspection in the
read as follows: product area cannot be made without the manner required by §1.6001–1(e), but are
consent of the Commissioner. The pos- not required to attach the statements to
§1.936–7T Manner of making election sessions corporation shall file an amended their returns.
under section 936(h)(5); special election Form 5712–A with its timely filed income (g)(2)(iv) through (i) [Reserved]. For
for export sales; revocation of election tax return to reflect any changes in the further guidance, see §1.1017–1(g)(2)(iv)
under section 936(a) (temporary). names or number of the members of the through (i).
affiliated group for any taxable year after Par. 12. Section 1.1368–1 is amended
(a) [Reserved]. For further guidance, the first taxable year to which the election by revising paragraphs (f)(5)(iii) and
see §1.936–7 (a). out applies. By consenting to the election (g)(2)(iii) to read as follows:
(b) Manner of making election. out, all affiliates agree to provide informa-
Q. 1: How does a possessions corporation necessary to compute the cost sharing
tion make an election to use the cost shar- payment under the cost sharing method or
ing method or profit split method? combined taxable income under the profit
2004-3 I.R.B. 301 January 20, 2004

§1.1368–1 Distributions by S the taxable year under §1.1368–1(g)(2)(i) statement described in §1.1377–1(b)(5)(i)
corporations. to treat the taxable year as if it consisted shall be verified, and the requirement of
of separate taxable years. The corporation this paragraph (b)(5)(i)(C) is satisfied, by
***** also must set forth facts in the statement the signature on the Form 1120S filed by
(f) * * * relating to the qualifying disposition (e.g., the S corporation.
(5) * * * sale, gift, stock issuance, or redemption), (b)(5)(i)(D) through (c) [Reserved].
(iii) [Reserved]. For further guidance, and state that each shareholder who held For further guidance, see §1.1377–1
see §1.1368–1T(f)(5)(iii). stock in the corporation during the tax- (b)(5)(i)(D) through (c).
***** able year (without regard to the election Par. 16. Section 1.1502–21 is amended
(g) * * * under §1.1368–1(g)(2)(i)) consents to this by revising paragraphs (b)(3)(i) and
(2) * * * election. For purposes of this election, (b)(3)(ii)(B) to read as follows:
(iii) [Reserved]. For further guidance, a shareholder of the corporation for the
see §1.1368–1T(g)(2)(iii). taxable year is a shareholder as described §1.1502–21 Net operating losses.
***** in section 1362(a)(2). A single election
Par. 13 Section 1.1368–1T is added to statement may be filed for all elections *****
read as follows: made under §1.1368–1(g)(2)(i) for the (b) * * *
taxable year. An election made under (3) * * * (i) [Reserved]. For further
§1.1368–1T Distributions by S §1.1368–1(g)(2)(i) of this section is ir- guidance, see §1.1502–21T(b)(3)(i).
corporations (temporary). revocable. In the case of elections for (ii)(A) * * *
taxable years beginning before January (b)(3)(ii)(B) [Reserved]. For further
(a) through (f)(5)(ii) [Reserved]. guidance, see §1.1502–21T(b)(3)(ii)(B).
1, 2003, the statement through which
For further guidance, see §1.1368–1(a)
a corporation makes an election under
through (f)(5)(ii). *****
§1.1368–1(g)(2)(i) must be signed by an
(f)(5)(iii) Corporate statement regard- Par. 17. Section 1.1502–21T is
officer of the corporation under penalties
ing elections. A corporation makes amended by revising paragraphs (b)(3)
of perjury. In the case of elections for
an election for a taxable year under through (b)(3)(ii)(B) to read as follows:
taxable years beginning after December
§1.1368–1(f) by attaching a statement
31, 2002, the statement described in the
to a timely filed original or amended re- §1.1502–21T Net operating losses
preceding sentence shall be verified by
turn required to be filed under section 6037 (temporary).
signing the return.
for that taxable year. In the statement, the
(g)(2)(iv) [Reserved]. For further guid-
corporation must identify the election it is *****
ance, see §1.1368–1(g)(2)(iv).
making under §1.1368–1(f) and must state (b)(3) Special rules—(i) Election to
Par. 14. Section 1.1377–1 is amended
that each shareholder consents to the elec- relinquish carryback. A group may make
by revising paragraph (b)(5)(i)(C) to read
tion. In the case of elections for taxable an irrevocable election under section
as follows:
years beginning before January 1, 2003, 172(b)(3) to relinquish the entire car-
an officer of the corporation must sign §1.1377–1 Pro rata share. ryback period with respect to a CNOL for
under penalties of perjury the statement any consolidated return year. Except as
on behalf of the corporation. In the case of ***** provided in paragraph (b)(3)(ii)(B) of this
elections for taxable years beginning after (b) * * * section, the election may not be made sep-
December 31, 2002, the statement de- (5) * * * arately for any member (whether or not it
scribed in this paragraph (f)(5)(iii) shall be (i) * * * remains a member), and must be made in
verified by signing the return. A statement (C) [Reserved]. For further guidance, a separate statement entitled “THIS IS AN
of election to make a deemed dividend un- see §1.1377–1T(b)(5)(i)(C). ELECTION UNDER §1.1502–21(b)(3)(i)
der §1.1368–1(f) must include the amount TO WAIVE THE ENTIRE CARRYBACK
of the deemed dividend that is distributed ***** PERIOD PURSUANT TO SECTION
to each shareholder. Par. 15. Section 1.1377–1T is added to 172(b)(3) FOR THE [insert consolidated
(f)(5)(iv) through (g)(2)(ii) [Re- read as follows: return year] CNOLs OF THE CONSOL-
served]. For further guidance, see IDATED GROUP OF WHICH [insert
§1.1368–1(f)(5)(iv) through (g)(2)(ii). §1.1377–1T Pro rata share (temporary). name and employer identification number
(g)(2)(iii) Time and manner of making of common parent] IS THE COMMON
election. A corporation makes an election (a) through (b)(5)(i)(B) [Reserved]. PARENT”. The statement must be filed
under §1.1368–1(g)(2)(i) for a taxable For further guidance, see §1.1377–1(a) with the group’s income tax return for the
year by attaching a statement to a timely through (b)(5)(i)(B). consolidated return year in which the loss
filed original or amended return required (b)(5)(i)(C) The signature on behalf of arises. If the consolidated return year in
to be filed under section 6037 for a taxable the S corporation of an authorized officer which the loss arises begins before Jan-
year (without regard to the election under of the corporation under penalties of per- uary 1, 2003, the statement making the
§1.1368–1(g)(2)(i)). In the statement, the jury, except that for taxable years begin- election must be signed by the common
corporation must state that it is electing for ning after December 31, 2002, the election parent. If the consolidated return year in
January 20, 2004 302 2004-3 I.R.B.

which the loss arises begins after Decem- (2) [Reserved]. For further guidance, (vi) * * *
ber 31, 2002, the election may be made in see §1.1502–75T(h)(2). (B) [Reserved]. For further guidance,
an unsigned statement. ***** see §1.1503–2T(g)(2)(vi)(B).
(b)(3)(ii) through (b)(3)(ii)(A) Par. 19. Section 1.1502–75T is added *****
[Reserved]. For further guidance, to read as follows: Par. 21. Section 1.1503–2T is added to
see §1.1502–21(b)(3)(ii) through read as follows:
(b)(3)(ii)(A). §1.1502–75T Filing of consolidated
(B) Acquisition of member from an- returns (temporary). §1.1503–2T Dual consolidated loss
other consolidated group. If one or more (temporary).
members of a consolidated group becomes (a) through (h)(1) [Reserved]. For fur-
a member of another consolidated group, ther guidance, see §1.1502–75(a) through (a) through (g)(1) [Reserved]. For fur-
the acquiring group may make an irrevo- (h)(1). ther guidance, see §1.1503–2(a) through
cable election to relinquish, with respect (2) Filing of Form 1122 for first year. If, (g)(1).
to all consolidated net operating losses under the provisions of §1.1502–75 (a)(1), (2) Elective relief provision—(i) In
attributable to the member, the portion of a group wishes to file a consolidated re- general. Paragraph (b) of this section shall
the carryback period for which the cor- turn for a taxable year, then a Form 1122 not apply to a dual consolidated loss if
poration was a member of another group, (“Authorization and Consent of Subsidiary the consolidated group, unaffiliated dual
provided that any other corporation join- Corporation To Be Included in a Consoli- resident corporation, or unaffiliated do-
ing the acquiring group that was affiliated dated Income Tax Return”) must be exe- mestic owner elects to be bound by the
with the member immediately before it cuted by each subsidiary. For taxable years provisions of §1.1503–2(g)(2) and this
joined the acquiring group is also included beginning before January 1, 2003, the exe- paragraph (g)(2). In order to elect relief
in the waiver. This election is not a yearly cuted Forms 1122 must be attached to the under §1.1503–2(g)(2) and this paragraph
election and applies to all losses that consolidated return for the taxable year. (g)(2), the consolidated group, unaffiliated
would otherwise be subject to a carryback For taxable years beginning after Decem- dual resident corporation, or unaffiliated
to a former group under section 172. The ber 31, 2002, the group must attach either domestic owner must attach to its timely
election must be made in a separate state- executed Forms 1122 or unsigned copies filed U.S. income tax return for the tax-
ment entitled “THIS IS AN ELECTION of the completed Forms 1122 to the con- able year in which the dual consolidated
UNDER §1.1502–21(b)(3)(ii)(B)(2) TO solidated return. If the group submits un- loss is incurred an agreement described in
WAIVE THE PRE-[insert first taxable signed Forms 1122 with its return, it must paragraph (g)(2)(i)(A) of this section. The
year for which the member (or members) retain the signed originals in its records agreement must be signed under penal-
was not a member of another group] CAR- in the manner required by §1.6001–1(e). ties of perjury by the person who signs
RYBACK PERIOD FOR THE CNOLs Form 1122 is not required for a taxable the return. For taxable years beginning
attributable to [insert names and employer year if a consolidated return was filed (or after December 31, 2002, the agreement
identification number of members].” The was required to be filed) by the group for attached to the income tax return of the
statement must be filed with the acquiring the immediately preceding taxable year. consolidated group, unaffiliated dual resi-
consolidated group’s original income tax (h)(3) through (k) [Reserved]. For dent corporation or unaffiliated domestic
return for the year the corporation (or cor- further guidance, see §1.1502–75(h)(3) owner pursuant to the preceding sentence
porations) became a member. If the year through (k). may be an unsigned copy. If an unsigned
in which the corporation (or corporations) Par. 20. Section 1.1503–2 is amend- copy is attached to the return, the consoli-
became a member begins before January ed by revising paragraphs (g)(2)(i), dated group, unaffiliated dual resident cor-
1, 2003, the statement must be signed (g)(2)(iv)(B)(3)(iii) and (g)(2)(vi)(B) to poration, or unaffiliated domestic owner
by the common parent and each of the read as follows: must retain the original in its records in
members to which it applies. If the year the manner specified by §1.6001–1(e).
in which the corporation (or corporations) §1.1503–2 Dual consolidated loss. The agreement must include the following
became a member begins after December items, in paragraphs labeled to correspond
***** with the items set forth in paragraphs
31, 2002, the election may be made in an
(g) * * * (g)(2)(i)(A) through (F) of this section:.
unsigned statement.
(2) * * * (A) A statement that the document sub-
***** (i) [Reserved]. For further guidance, mitted is an election and an agreement un-
Par. 18. Section 1.1502–75 is amended see §1.1503–2T(g)(2)(i). der the provisions of §1.1503–2(g)(2) of
by revising paragraph (h)(2) to read as fol- ***** the Income Tax Regulations.
lows: (iv) * * * (B) The name, address, identifying
(B) * * * number, and place and date of incorpo-
§1.1502–75 Filing of consolidated (3) * * *
returns. ration of the dual resident corporation,
(iii) [Reserved]. For further guidance, and the country or countries that tax the
***** see §1.1503–2T(g)(2)(iv)(B)(3)(iii) dual resident corporation on its worldwide
(h) * * * ***** income or on a residence basis, or, in the
2004-3 I.R.B. 303 January 20, 2004

case of a separate unit, identification of the copy is attached to the return, the corpo- §1.6038B–1 Reporting of certain transfers
separate unit, including the name under ration or consolidated group must retain to foreign corporations.
which it conducts business, its principal the original in its records in the manner
activity, and the country in which its prin- specified by §1.6001–1(e). *****
cipal place of business is located. (g)(2)(iv)(C) through (vi)(A) [Re- (b)(1)(i) and (ii) [Reserved]. For fur-
(C) An agreement by the consolidated served]. For further guidance, see ther guidance, see §1.6038B–1T(b)(1)(i)
group, unaffiliated dual resident corpo- §1.1503–2(g)(2)(iv)(C) through (vi)(A). and (ii).
ration, or unaffiliated domestic owner (B) Annual certification. Except as *****
to comply with all of the provisions of provided in §1.1503–2(g)(2)(vi)(C), until Par. 23. Section 1.6038B–1T is
paragraphs (g)(2)(iii) through (vii) of and unless Form 1120 or the Schedules amended by revising paragraphs (a)
§1.1503–2 and this section. thereto contain questions pertaining to through (b)(3) to read as follows:
(D) A statement of the amount of the dual consolidated losses, the consolidated
dual consolidated loss covered by the group, unaffiliated dual resident corpora- §1.6038B–1T Reporting of certain
agreement. tion, or unaffiliated domestic owner must transactions to foreign corporations
(E) A certification that no portion of file with its income tax return for each of (temporary).
the dual resident corporation’s or sepa- the 15 taxable years following the taxable
(a) [Reserved]. For further guidance,
rate unit’s losses, expenses, or deductions year in which the dual consolidated loss
see §1.6038B–1(a).
taken into account in computing the dual is incurred a certification that the losses,
(b) Time and manner of reporting—(1)
consolidated loss has been, or will be, used expenses, or deductions that make up the
In general—(i) Reporting procedure.
to offset the income of any other person un- dual consolidated loss have not been used
Except for stock or securities qualify-
der the income tax laws of a foreign coun- to offset the income of another person
ing under the special reporting rule of
try. under the tax laws of a foreign country.
§1.6038B–1(b)(2) , and certain exchanges
(F) A certification that arrangements For taxable years beginning before Jan-
described in section 354 (listed below),
have been made to ensure that no portion uary 1, 2003, the annual certification must
any U.S. person that makes a transfer
of the dual consolidated loss will be used to be signed under penalties of perjury by a
described in section 6038B(a)(1)(A),
offset the income of another person under person authorized to sign the agreement
367(d) or (e), is required to report pur-
the laws of a foreign country and that the described in paragraph (g)(2)(i) of this
suant to section 6038B and the rules of
consolidated group, unaffiliated dual res- section. For taxable years beginning after
§1.6038B–1 and this section and must at-
ident corporation, or unaffiliated domestic December 31, 2002, the certification is
tach the required information to Form 926,
owner will be informed of any such foreign verified by signing the return with which
“Return by a U.S. Transferor of Property
use of any portion of the dual consolidated the certification is filed. The certification
to a Foreign Corporation.” For special
loss. for a taxable year must identify the dual
rules regarding cash transfers made in tax
(g)(2)(ii) through (iv)(B)(3)(ii) [Re- consolidated loss to which it pertains by
years beginning after February 5, 1999,
served] For further guidance, see setting forth the taxpayer’s year in which
see §1.6038B–1(b)(3) and (g) . For pur-
§1.1503–2(g)(2)(ii) through (iv)(B)(3)(ii). the loss was incurred and the amount of
poses of determining a U.S. transferor
(g)(2)(iv)(B)(3)(iii) The unaffiliated such loss. In addition, the certification
that is subject to section 6038B, the rules
domestic corporation or new consoli- must warrant that arrangements have been
of §1.367(a)–1T(c) and §1.367(a)–3(d)
dated group must file, with its timely made to ensure that the loss will not be
shall apply with respect to a transfer de-
filed income tax return for the taxable used to offset the income of another per-
scribed in section 367(a), and the rules
year in which the event described in son under the laws of a foreign country
of §1.367(a)–1T(c) shall apply with re-
§1.1503–2(g)(2)(iv)(B)(1) or (2) occurs, and that the taxpayer will be informed of
spect to a transfer described in section
an agreement described in paragraph any such foreign use of any portion of
367(d). Additionally, if in an exchange
(g)(2)(i) of this section (new (g)(2)(i) the loss. If dual consolidated losses of
described in section 354, a U.S. person
agreement), whereby it assumes the same more than one taxable year are subject to
exchanges stock of a foreign corporation
obligations with respect to the dual consol- the rules of this paragraph (g)(2)(vi)(B),
in a reorganization described in section
idated loss as the corporation or consoli- the certifications for those years may be
368(a)(1)(E), or a U.S. person exchanges
dated group that filed the original (g)(2)(i) combined in a single document but each
stock of a domestic or foreign corporation
agreement with respect to that loss. The dual consolidated loss must be separately
for stock of a foreign corporation pur-
new (g)(2)(i) agreement must be signed identified.
suant to an asset reorganization described
under penalties of perjury by the person (g)(2)(vii) through (h) [Reserved]. For
in section 368(a)(1)(C), (D), or (F), that
who signs the return and must include a further guidance, see §1.1503–2(g)(2)(vii)
is not treated as an indirect stock trans-
reference to §1.1503–2(g)(2)(iv)(B)(3)(iii) through (h).
fer under section 367(a), then the U.S.
or this paragraph (g)(2)(iv)(B)(3)(iii). For Par. 22. Section 1.6038B–1 is amended
person exchanging stock is not required
taxable years beginning after December by revising paragraphs (b)(1)(i) and
to report under section 6038B. Notwith-
31, 2002, the agreement attached to the (b)(1)(ii) to read as follows:
standing any statement to the contrary on
return pursuant to the preceding sentence
Form 926, the form and attachments must
may be an unsigned copy. If an unsigned
be attached to, and filed by the due date
January 20, 2004 304 2004-3 I.R.B.

(including extensions) of the transferor’s Authority: 26 U.S.C. 7805 * * * return. If an entity, or one of its direct or
income tax return for the taxable year that Par. 25. Section 301.7701–3 is indirect owners, fails to attach a copy of a
includes the date of the transfer (as defined amended by revising paragraph (c)(1)(ii) Form 8832 to its return as directed in this
in §1.6038B–1T(b)(4)). For taxable years to read as follows: section, an otherwise valid election under
beginning before January 1, 2003, any at- §301.7701–3(c)(1)(i) will not be invali-
tachment to Form 926 required under the §301.7701–3 Classification of certain dated, but the non-filing party may be sub-
rules of this section is filed subject to the business entities. ject to penalties, including any applicable
transferor’s declaration under penalties of penalties if the federal tax or information
perjury on Form 926 that the information ***** returns are inconsistent with the entity’s
submitted is true, correct and complete to (c) * * * (1) * * * election under §301.7701–3(c)(1)(i). In
the best of the transferor’s knowledge and (ii) [Reserved]. For further guidance, the case of returns for taxable years begin-
belief. For taxable years beginning after see §301.7701–3T(c)(1)(ii). ning after December 31, 2002, the copy of
December 31, 2002, Form 926 and any ***** Form 8832 attached to a return pursuant to
attachments shall be verified by signing Par. 26. Section 301.7701–3T is added this paragraph (c)(1)(ii) is not required to
the income tax return with which the form to read as follows: be a signed copy.
and attachments are filed. (c)(1)(iii) through (h) [Re-
(ii) Reporting by corporate transferor. §301.7701–3T Classification of certain served]. For further guidance, see
For transfers by corporations in taxable business entities (temporary). §301.7701–3(c)(1)(iii) through (h).
years beginning before January 1, 2003,
Form 926 must be signed by an authorized (a) through (c)(1)(i) [Reserved]. For PART 602—OMB CONTROL
officer of the corporation if the transferor is further guidance, see §301.7701–3(a) NUMBERS UNDER THE PAPERWORK
not a member of an affiliated group under through (c)(1)(i). REDUCTION ACT
section 1504(a)(1) that files a consolidated (ii) Further notification of elections.
An eligible entity required to file a federal Par. 27. The authority citation for part
Federal income tax return and by an autho-
tax or information return for the taxable 602 continues to read as follows:
rized officer of the common parent corpo-
year for which an election is made un- Authority: 26 U.S.C. 7805
ration if the transferor is a member of such
der §301.7701–3(c)(1)(i) must attach a Par. 28. In §602.101, paragraph (b)
an affiliated group. For transfers by cor-
copy of its Form 8832 to its federal tax is amended by adding the following entry
porations in taxable years beginning after
or information return for that year. If the in numerical order to the table to read as
December 31, 2002, Form 926 shall be ver-
entity is not required to file a return for follows:
ified by signing the income tax return to
which the form is attached. that year, a copy of its Form 8832 (“Entity
§602.101 OMB Control numbers
(b)(2) through (b)(3) [Reserved]. For Classification Election”) must be attached
further guidance, see §1.6038B–1(b)(2) to the federal income tax or information *****
through (b)(3). return of any direct or indirect owner of (b) * * *
the entity for the taxable year of the owner
*****
that includes the date on which the elec-
PART 301 — PROCEDURE AND tion was effective. An indirect owner of
ADMINISTRATION the entity does not have to attach a copy
of the Form 8832 to its return if an en-
Par. 24. The authority citation for part tity in which it has an interest is already
301 continues to read in part as follows: filing a copy of the Form 8832 with its
CFR part or section where Current OMB

identified and described control No.
*****
1.170A–11T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–1868
*****
Robert E. Wenzel, Gregory F. Jenner, Section 6038B.—Notice

Deputy Commissioner for Deputy Assistant Secretary of Certain Transfers to
Services and Enforcement. of the Treasury (Tax Policy). Foreign Persons
(Filed by the Office of the Federal Register on December 18, Regulations eliminate impediments to the elec-
Approved December 2, 2003. 2003, 8:45 a.m., and published in the issue of the Federal
Register for December 19, 2003, 68 F.R. 70701) tronic filing of certain income tax returns and other
2004-3 I.R.B. 305 January 20, 2004

Section 6045.—Returns however, “Payments in lieu of dividends 2003–40 I.R.B. 752. The notice also
of Brokers are not eligible for the lower rates.” See provided guidance on the definition of
H.R. REP. NO. 108–94, 108th Cong., 1st loanable shares and the allocation and
26 CFR 1.6045–2: Furnishing statement required
with respect to certain substitute payments.
Sess. 31 n.36 (2003). selection of transferred shares (that is,
shares giving rise to payments in lieu of
Explanation of Provisions dividends to customers). The IRS in-
T.D. 9103
tends to issue comprehensive regulations
Section 6045(a) of the Internal Rev-
DEPARTMENT OF amending §1.6045–2 in the future. The
enue Code (Code) provides that every per-
IRS anticipates that these regulations will
THE TREASURY son doing business as a broker shall, when
define payments in lieu of dividends, pro-
Internal Revenue Service required by the Secretary, make a return
vide rules for determining loanable shares,
26 CFR Part 1 showing the name and address of each
and provide rules for allocating and se-
customer, together with information as re-
lecting transferred shares to customers.
Information Statements for quired by forms and regulations. Section
Pending issuance of further amendments
6045(d) provides that brokers who trans-
Certain Substitute Payments fer a customer’s securities for use in a
to §1.6045–2 of the existing regulations,
brokers may rely on Notice 2003–67
AGENCY: Internal Revenue Service (IRS) short sale or similar transaction, and re-
to comply with the requirements of the
Treasury. ceive payments in lieu of a dividend, tax-
JGTRRA and section 6045(d).
exempt interest, or other items set forth
In addition, pending issuance of fur-
ACTION: Final regulations. in regulations (substitute payments), must
ther amendments to §1.6045–2, the IRS
furnish the customer with a written state-
SUMMARY: This document contains final will permit brokers to continue to use the
ment identifying the payment as being in
regulations under section 6045(d) that re- rules of §1.6045–2 of the existing regu-
lieu of the dividend, tax-exempt interest,
flect the changes to information reporting lations for allocating transferred shares to
or other item. This section authorizes the
for payments in lieu of dividends effected customers. A broker may continue to al-
Secretary to prescribe regulations that re-
by the Jobs and Growth Tax Relief Rec- locate transferred shares to shares of stock
quire brokers to file information returns
onciliation Act of 2003 (JGTRRA). These that the broker has borrowed under a secu-
that include the information contained in
regulations provide that brokers must file rity agreement with the customer. In addi-
the written statement.
information returns and furnish information, if a broker uses the lottery method of
Section 1.6045–2 of the existing In-
tion statements reporting substitute pay- allocation and selection of loanable shares
come Tax Regulations provides rules
ments in lieu of dividends to individuals specified in §1.6045–2(f)(2)(ii), the bro-
for reporting substitute payments un-
who receive substitute payments in lieu of ker may make the selection of the trans-
der section 6045(d). In general,
dividends on or after January 1, 2003. ferred shares within the individual pool de-
§1.6045–2(a)(3)(i) of the existing reg-
scribed in §1.6045–2(f)(2)(ii)(C) using the
ulations excludes payments in lieu of
DATES: Effective Date: These final regu- methods of selection of transferred shares
dividends received by a broker on behalf
lations are effective December 29, 2003. used within the nonindividual pool as pre-
of an individual from the broker reporting
Applicability Date: These regulations scribed in §1.6045–2(f)(2)(ii)(B).
requirements of section 6045(d). Sec-
apply to information returns required to be
tion 1.6045–2(a)(3)(ii) of the existing Special Analyses
filed, and information statements required
regulations requires reporting for certain
to be furnished, after December 31, 2003.
dividend substitute payments received by These final regulations are necessary to
FOR FURTHER INFORMATION a broker on behalf of an individual, such provide brokers and taxpayers with imme-
CONTACT: Michael Hara of the Office of as payments in lieu of exempt interest div- diate guidance regarding provisions in the
Associate Chief Counsel (Procedure and idends distributed by regulated investment JGTRRA that affect information report-
Administration), (202) 622–4910 (not a companies. ing for substitute payments in lieu of divi-
toll-free number). These regulations contain amendments dends. The regulations apply to informa-
to the existing regulations to require re- tion returns required to be filed, and in-
SUPPLEMENTARY INFORMATION: porting under section 6045(d) for pay- formation statements required to be fur-
ments in lieu of dividends made to in- nished, after December 31, 2003. Based
Background dividuals on or after January 1, 2003. on these considerations, it is determined
For taxable years beginning on or after that these final regulations will provide
Section 302 of the Jobs and Growth
January 1, 2003, brokers must use Form brokers and taxpayers with the necessary
Tax Relief Reconciliation Act of 2003 (the
1099–MISC, “Miscellaneous Income”, to guidance and authority to comply with the
JGTRRA), Public Law No. 108–27 (117
report substitute payments to individuals, tax laws. Because of the need for immedi-
Stat. 752), reduced the tax rate for “quali-
including payments in lieu of dividends. ate guidance, notice and public procedure
fied dividends” paid to an individual share-
The IRS issued interim guidance re- are impracticable and contrary to the pub-
holder to the same tax rate as capital gains
garding provisions of the JGTRRA that lic interest pursuant to 5 U.S.C. 553(b)(B)
for taxable years beginning after Decem-
affect information reporting for payments and delayed effective date is not required
ber 31, 2002, and beginning before Jan-
in lieu of dividends in Notice 2003–67, pursuant to 5 U.S.C. 553(d)(3).
uary 1, 2009. The legislative history states,
January 20, 2004 306 2004-3 I.R.B.

Because no notice of proposed rule- PART 1—INCOME TAXES Mark E. Matthews,
making is required, the provisions of the Deputy Commissioner for Services
Regulatory Flexibility Act, 5 U.S.C. 601 Paragraph 1. The authority citation for and Enforcement.
(et seq.) do not apply. Further, it has been part 1 continues to read in part as follows:
determined that this Treasury decision is Authority: 26 U.S.C. 7805 * * * Approved December 18, 2003.
not a significant regulatory action as de- Par. 2. Section 1.6045–2 is amended
by: Pamela F. Olson,
fined in Executive Order 12866. There-
1. Paragraph (a)(3)(i) is revised. Assistant Secretary of the Treasury.
fore, a regulatory assessment is not re-
quired. Pursuant to section 7805(f) of the 2. The heading for paragraph (a)(3)(ii) (Filed by the Office of the Federal Register on December 24,
Code, these regulations were submitted to is revised. 2003, 8:45 a.m., and published in the issue of the Federal
Register for December 29, 2003, 68 F.R. 74847)
the Chief Counsel for Advocacy of the The revisions read as follows:
Small Business Administration for com-
§1.6045–2 Furnishing statement required
ment on their impact on small business.
with respect to certain substitute
Section 7701.—Definitions
Drafting Information payments. Regulations eliminate impediments to the elec-
The principal author of these regula- (a) * * * forms. See T.D. 9100, page 297.
tions is Michael Hara, Office of Associate (3) * * * (i) In general. Except as oth-
Chief Counsel (Procedures and Adminis- erwise provided in paragraph (a)(3)(ii) of
tration), Administrative Provisions and Ju- this section, for taxable years beginning
dicial Practice. before January 1, 2003, a broker that re-
ceives a substitute payment in lieu of a div-
***** idend on behalf of a customer who is an in-
dividual (“individual customer”) need not
Adoption of Amendments to the
furnish a statement to the customer.
Regulations
(ii) Reporting for certain dividends.
Accordingly, 26 CFR part 1 is amended ***
as follows: *****
2004-3 I.R.B. 307 January 20, 2004

Part III. Administrative, Procedural, and Miscellaneous
Request for Comments books and records; (3) whether the prop- 4. What is “value” for purposes of the
Concerning the Application erty is designed to be easily removed from “material increase in value” rule? Does
of Sections 162 and 263 to a larger assembly, is regularly or period- “value” refer solely to the fair market value
ically replaced, or is one of a fungible of the property? Alternatively, should any
Tangible Property set of interchangeable or rotable assets; “enhanced functionality” of the property in
(4) whether the property must be removed the taxpayer's business (e.g., an enhance-
Notice 2004–6 from a larger assembly to be fixed or im- ment to capacity, productivity, quality, or
The Internal Revenue Service and proved; (5) whether the property has a dif- efficiency) be treated as an additional ba-
Treasury Department intend to propose ferent economic life than the larger assem- sis for capitalization? See Vanalco, Inc.
regulations that clarify the application of bly; (6) whether the property is subject to v. Commissioner, T.C.M. 1999–265, aff'd
§§ 162 and 263 of the Internal Revenue a separate warranty; (7) whether the prop- sub nom., Smith v. Commissioner, 300
Code to expenditures paid or incurred to erty serves a discrete purpose or functions F.3d 1023 (9th Cir. 2001).
repair, improve, or rehabilitate tangible independently from a larger assembly; or 5. How should it be determined
property. This notice identifies issues the (8) whether the property serves a dual pur- whether there has been a “material in-
Service and Treasury Department may pose function, (e.g., inventory)? See Smith crease” in value? Should an increase
address in the regulations. The Service v. Commissioner, 300 F.3d 1023 (9th Cir. in the fair market value of property after
and Treasury Department want to provide 2002); Hawaiian Indep. Ref. Inc. v. the expenditure be compared to the fair
clear, consistent and administrable rules United States, 697 F.2d 1063 (Fed. Cir. market value of the property before the
that will reduce the uncertainty and con- 1983), cert. denied, 464 U.S. 816 (1983); expenditure or the cost of equivalent new
troversy in this area, while also preventing Electric Energy, Inc. v. United States, property? Should the regulations create a
the distortion of income. Accordingly, 13 Cl. Ct. 644 (1987); FedEx Corp. v. presumption that an addition to fair market
the Service and Treasury Department re- United States, No. 01–2200 (W.D. Tenn. value is material (or immaterial) if it ex-
quest public comments on whether these August 28, 2003); Ingram Indus., Inc. v. ceeds (or is less than) a certain percentage
or other issues should be addressed in the Commissioner, T.C.M. 2000–323; LaSalle of the fair market value of the property or
regulations and, if so, what specific rules Trucking Co. v. Commissioner, T.C.M. the cost of equivalent new property?
and principles should be provided. 1963–274. Are there other facts or circum- If enhanced functionality constitutes a
stances that should be taken into account? basis for requiring capitalization, should
ISSUES ON WHICH COMMENTS ARE 3. In determining whether an expen- the regulations require a certain percent-
REQUESTED diture materially increases the value age of improvement before the expendi-
of property or substantially prolongs tures are required to be capitalized (e.g., an
1. What general principles of capi- the useful life of property, what is the X% increase in capacity, productivity, or
talization should apply to expenditures proper starting point for comparison? efficiency)? If the enhanced functionality
to repair or improve tangible property? Should the forthcoming guidance adopt cannot be measured by a percentage of im-
The regulations currently require capital- the test in Plainfield-Union Water Co. provement (e.g., enhancements to safety)
ization for expenditures that materially in- v. Commissioner, 39 T.C. 333 (1962), how should a “material increase” be deter-
crease the value of property, substantially nonacq. 1964–2 C.B. 8, which looks at mined?
prolong the useful life of property, or adapt “whether the expenditure materially en- 6. What is “useful life” for purposes
property to a new or different use. Sections hances the value, use, life expectancy, of the “substantially prolongs useful
1.162–4; 1.263(a)–1(b) of the Income Tax strength, or capacity as compared with the life” rule? Is “useful life” the period the
Regulations. Are these the appropriate status of the asset prior to the condition ne- taxpayer may reasonably expect to use
tests for capitalization? If so, how should cessitating the expenditure”? Should the the property in its trade or business (see
the forthcoming guidance clarify the appli- starting point be different depending on § 1.167(a)–1(b)) or the period of use inher-
cation of these standards? Alternatively, whether the expenditure was necessitated ent in the property? Should the following
should different standards apply? If so, by a single event, such as a casualty, or factors be considered in determining a
what different standards? from gradual wear and tear? See Ingram property's useful life: (1) wear and tear or
2. In applying the general principles, Indus.; Rev. Rul. 2001–4, 2001–1 C.B. decay and decline from natural causes; (2)
what is the appropriate “unit of prop- 295. If the expenditure relates to a com- normal progress of art, economic changes,
erty”? Should any of the following fac- ponent part, does the relative importance inventions, and current developments
tors be determinative or relevant in analyz- of the component part to the functionality within the industry or the taxpayer's trade
ing what is the appropriate unit of prop- of the underlying asset affect the starting or business; (3) climatic and other local
erty: (1) whether the property is manufac- point? See Smith, 300 F.3d at 1031–32. conditions specific to the taxpayer's trade
tured, marketed, or purchased separately; Should the test in Plainfield-Union apply or business; (4) the taxpayer's policy as
(2) whether the property is treated as a sep- as well to expenditures incurred upon ac- to repairs, renewals, and replacements;
arate unit by a regulatory agency, in in- quisition of the property and, if so, how and (5) whether the asset was subject to
dustry practice, or by the taxpayer in its would the test apply? unusual wear and tear, for example, heavy
January 20, 2004 308 2004-3 I.R.B.

or extraordinary use. See § 1.167(a)–1(b). or large or significant parts of the prop- provements have to be to result in a plan of
Should the recovery periods under § 168 erty are replaced; (7) whether the prop- rehabilitation (e.g., is at least one capital
be relevant to the determination of “useful erty was functioning immediately before expenditure required before the doctrine
life” for capitalization purposes? the expenditure; (8) the absolute or rela- applies and may a single capital expendi-
7. How should it be determined tive amount of the expenditure; (9) the rel- ture cause the doctrine to apply)? Are re-
whether an expenditure “substantially ative importance of a component and the pairs part of a plan of rehabilitation when
prolongs” the useful life of the property? “essential functional nature” of a compo- the repairs are done in preparation for or
If the expenditure prolongs the useful life nent (see Smith, 300 F.3d at 1031–32); and as part of a remodeling project? See Nor-
of property for a fixed number of years (10) whether the expenditure is for an ac- west Corp. v. Commissioner, 108 T.C. 265
is that sufficient to require capitalization? tivity described in a manufacturer's sug- (1997). If so, what constitutes a remod-
Alternatively, does the expenditure need gested maintenance program? eling project? Does the doctrine apply if
to prolong the property's initial or remain- 11. Should the regulations provide the work is part of a continuous or ongo-
ing useful life by a relative amount (e.g., “repair allowance” type rules? For ex- ing process of replacing an asset over time
by a certain percentage)? Should the test ample, should the regulations provide rules (e.g., if normal operation requires ongo-
be whether the expenditure essentially re- similar to the percentage repair allowance ing repainting and repapering, do repaint-
sults in a rebuilding? See Ingram Indus.; system, since repealed, that is described in ing and repapering costs become capital if
Vanalco. Is it relevant at what point in the § 1.167(a)–11(d)(2)? If so, should the al- they correspond with a capital remodeling
useful life of the property the expenditure lowance be an annual amount based on a project)? See Moss v. Commissioner, 831
is incurred? Are there presumptions or percentage of the unadjusted basis of the F.2d 833 (9th Cir. 1987). Should the reg-
safe harbors that would be useful, for ex- asset or should the allowance be an annual ulations establish a bright-line test that re-
ample, a presumption that an expenditure amount based on gross receipts or net in- pairs of property are considered part of a
that prolongs the useful life of the property come? Should a repair allowance be struc- plan of rehabilitation if the property is, at
for less than X months or by less than Y% tured as a safe harbor? Should a safe har- the time the repairs are made, not suitable
is not “substantial”? bor apply to both personal property and for its intended use, in a general state of
8. Is § 263(a)(2) a different test from real property? See Alacare Home Health disrepair, or at the end of its useful life?
the “substantially prolongs the useful Serv. Inc. v. Commissioner, T.C.M. Should the regulations address other is-
life of the property” test? If so, what 2001–149. sues, such as whether a written plan is re-
rules should be provided for determining 12. Should the regulations provide a quired and whether the existence of a writ-
whether an expenditure “restores property de minimis rule? If so, what should the de ten plan indicates a plan of rehabilitation?
or makes good the exhaustion thereof for minimis amount be (e.g., a fixed amount, a 14. Should the regulations provide
which an allowance is or has been made” percentage of the fair market value of the specific rules for any particular type or
within the meaning of § 263(a)(2)? property, a percentage of the unadjusted category of expenditure?
9. What factors are relevant in deter- or adjusted basis of the property, or a per- 15. Are there any situations in which
mining whether an expenditure adapts centage of the cost of equivalent new prop- the tax treatment of an expenditure to
property to a new or different use? erty)? Should a de minimis rule be struc- repair, improve, or rehabilitate tangi-
10. What other factors should be con- tured as a safe harbor? Should a de min- ble property should follow the financial
sidered in determining whether an ex- imis rule apply to both personal property or regulatory accounting treatment for
penditure must be capitalized? For ex- and real property? Should the de min- that expenditure?
ample, should the following factors affect imis amount be periodically increased (or
the analysis of whether an expenditure in- decreased), and if so, how? See Cincin- DATES: Written and electronic comments
creases the value of property, prolongs the nati, New Orleans and Texas Pac. Ry. Co. must be submitted by March 1, 2004.
useful life, or adapts the property to a new v. United States, 424 F.2d 563 (Ct. Cl.
or different use and, if so, how: (1) the na- 1970); Alacare. ADDRESSES: Send submissions to:
ture and extent of the work performed (e.g., 13. What facts are relevant in deter- CC:PA:LDP:PR (Notice 2004–6), room
the time and effort required to perform the mining whether a repair must be cap- 5203, Internal Revenue Service, P.O. Box
work, whether the property had to be taken italized under the “plan of rehabilita- 7604, Ben Franklin Station, Washington,
out of service for the work, and the portion tion” doctrine? Should the regulations DC 20044. Submissions may be hand
of the property affected by the work); (2) adopt a facts and circumstances analysis delivered Monday through Friday be-
the use of materials that reflect product en- that looks to the purpose, nature, extent, tween the hours of 8 a.m. and 4 p.m. to:
hancements, improved materials, or tech- and value of the work done? See United CC:ITA:PR (Notice 2004–6), Courier's
nological improvements; (3) the existence States v. Wehrli, 400 F.2d 686 (10th Cir. Desk, Internal Revenue Service, 1111
of regulatory mandates; (4) the frequency 1968). What connection is required be- Constitution Avenue, N.W., Washington,
of the expenditure (e.g., whether the ex- tween the repairs and the capital improve- DC. Alternatively, taxpayers may send
penditure is incurred once or every couple ments for the plan of rehabilitation doc- submissions electronically directly to the
of years); (5) the taxpayer's knowledge of trine to apply? That is, must repairs be Service at: Notice.comments@irscoun-
pre-existing defects at the time the prop- incident to, integral to, contemporaneous sel.treas.gov All materials submitted will
erty was acquired; (6) whether a substan- with, or because of the capital improve- be available for public inspection and
tial percentage of the parts of the property ments? How extensive do the capital im- copying.
2004-3 I.R.B. 309 January 20, 2004

FOR FURTHER INFORMATION transferred a nondeductible partial interest Similarly, a charitable organization’s
CONTACT: Concerning submissions, in the patent. For other examples of non- promise to hold a patent and maintain
Guy Traynor (202) 622–7180; concerning deductible partial interests, see Situations it for a period of time is consideration
this notice, Grace K. Matuszeski (202) 1 and 2 of Rev. Rul. 2003–28, 2003–11 to a taxpayer if the taxpayer is benefited
622–7327 (not toll-free numbers). I.R.B. 594. when others are prevented from purchas-
Generally, to be deductible as a charita- ing or licensing the patent. Cf. Rev. Rul.
ble contribution under § 170, a transfer to 2003–28, Situation 3 (taxpayer received
Charitable Contributions of a charitable organization must be a gift. A no benefit from restriction on donated
Patents and Other Intellectual gift to a charitable organization is a trans- patent). In each of these examples, the
Property fer of money or property without receipt taxpayer has the burden of showing that it
of adequate consideration, made with char- knew, at the time of the transfer, that the
Notice 2004–7 itable intent. See U.S. v. American Bar value of the donated property exceeded
Endowment, 477 U.S. 105, 117–18 (1986) the value of the consideration it received
The Internal Revenue Service (IRS) is (citing Rev. Rul. 67–246, 1967–2 C.B. from the donee. The taxpayer may deduct
aware that some taxpayers that transfer 104, with approval); Hernandez v. Com- no more than this excess amount.
patents or other intellectual property to missioner, 490 U.S. 680, 690 (1989); and A charitable contribution is allowable
charitable organizations are claiming char- § 1.170A–1(h)(1) and (2) of the Income as a deduction only if substantiated in ac-
itable contribution deductions in excess of Tax Regulations. A transfer to a charita- cordance with regulations prescribed by
the amounts to which they are entitled un- ble organization is not made with chari- the Secretary. Section 170(a)(1) and (f)(8).
der § 170 of the Internal Revenue Code. table intent if the transferor expects a re- Under § 170(f)(8), a taxpayer must sub-
In particular, the IRS has become aware of turn commensurate with the amount of the stantiate its contributions of $250 or more
purported charitable contributions of intel- transfer. Hernandez at 690; see also Amer- by obtaining from the donee a statement
lectual property in which one or more of ican Bar Endowment at 116. that includes: (1) a description of any re-
the following issues are present: 1) transfer If a taxpayer receives a benefit in return benefit provided by the donee; and (2)
of a nondeductible partial interest in intel- turn for a transfer to a charitable organi- a good faith estimate of the benefit’s fair
lectual property; 2) the taxpayer’s expec- zation, the transfer may be deductible as market value. (See § 1.170A–13 for ad-
tation or receipt of a benefit in exchange a charitable contribution, but only to the ditional substantiation requirements.) The
for the transfer; 3) inadequate substantia- extent the amount transferred exceeds the IRS intends, in appropriate cases, to disal-
tion of the contribution; and 4) overvalua- fair market value of the benefit received, low deductions if the taxpayer fails to com-
tion of the intellectual property transferred. and only if the excess amount was trans- ply with the substantiation requirements.
The purpose of this notice is to advise tax- ferred with the intent of making a gift (a See, e.g., Addis v. Commissioner, 118 T.C.
payers that, in appropriate cases, the IRS “dual character” transfer). See American 528 (2002).
intends to disallow all or part of these im- Bar Endowment at 118 (the taxpayer must If all requirements of § 170 are satisfied,
proper deductions and may impose penal- “at a minimum demonstrate that he pur- including those discussed above, and a de-
ties under § 6662. In addition, this no- posely contributed money or property in duction is thereby allowed, the amount of
tice advises promoters and appraisers that excess of the value of any benefit he re- the deduction may not exceed the fair mar-
the IRS intends to review promotions of ceived in return.”) In other words, the tax- ket value of the contributed property on the
transactions involving these improper de- payer must establish that it knew at the date of contribution (reduced by the fair
ductions, and that the promoters and ap- time of the transfer that the value of what it market value of any consideration received
praisers of the intellectual property may be gave was greater than the value of what it by the taxpayer). See § 1.170A–1(c)(1).
subject to penalties under §§ 6700, 6701, received. See id. In this situation, the bur- Fair market value is the price at which
and 6694. den is on the taxpayer to show that all or the property would change hands between
Section 170(a)(1) allows as a deduction, part of the payment was a charitable con- a willing buyer and a willing seller, nei-
subject to certain limitations and restric- tribution. See § 1.170A–1(h). All consid- ther being under any compulsion to buy or
tions, any charitable contribution (as de- eration provided by the charitable organi- sell and both having reasonable knowledge
fined in § 170(c)) that is made within the zation (other than benefits disregarded un- of relevant facts. Section 1.170A–1(c)(2).
taxable year. der § 1.170A–13(f)(8)) must be taken into For example, the fair market value of a
However, § 170(f)(3) provides gener- account, including non-cash benefits. patent must be determined after taking into
ally that no charitable contribution deduc- For example, if a donation agreement account, among other factors: (1) whether
tion is allowed for a transfer to a charitable states that the donee assumes a taxpayer’s the patented technology has been made
organization of less than the taxpayer’s en- liability for a lease of a research facility, obsolete by other technology; (2) any re-
tire interest in property. For example, if a this assumption of liability is considera- strictions on the donee’s use of, or abil-
donation agreement states that a transfer to tion from the donee. Likewise, a donee’s ity to transfer, the patented technology (see
the donee of the taxpayer’s interests in a promise to make available to the taxpayer Rev. Rul. 2003–28, Situation 3); and (3)
patent is subject to a right retained by the the results of the donee’s research, such as the length of time remaining before the
taxpayer to manufacture or use any prod- laboratory notebooks, data, and research patent’s expiration.
uct covered by the patent, the taxpayer has files, is consideration from the donee.
January 20, 2004 310 2004-3 I.R.B.

DRAFTING INFORMATION zation (hereinafter, both are referred to changed by the transferor (through filing,
as “depreciation”) that are (and are not) for example, a Form 3115 or an amended
The principal author of this notice is changes in method of accounting under return) or by the Internal Revenue Service
Patricia Zweibel of the Office of Associate § 446(e). Section 1.1016–3T(h) provides upon examination of the transferor’s tax
Chief Counsel (Income Tax and Account- that the “allowed or allowable” rule under returns. In this case, the § 481 adjustment
ing). For further information regarding § 1016(a)(2) does not permanently affect will include any necessary adjustments
this notice, please contact Ms. Zweibel at a taxpayer’s lifetime income for purposes since the property’s placed-in-service date
(202) 622–5020 (not a toll-free call). of determining whether a change in by the transferor.
depreciation or amortization is a change
26 CFR 601.204: Changes in accounting periods and in method of accounting under § 446(e). SECTION 3. METHOD CHANGE
in methods of accounting. .03 If a taxpayer uses an impermissible PROCEDURE FOR DISPOSED
(Also Part I, §§ 446, 1016; 1.446–1T, 1.1016–3T.) method of determining depreciation for a DEPRECIABLE OR AMORTIZABLE
depreciable or amortizable property, the PROPERTY
Rev. Proc. 2004–11 taxpayer adopts that method of accounting
for the property when the taxpayer treats .01 Scope.
the property in the same way in determin- (1) Applicability. Except as provided in
SECTION 1. PURPOSE
ing gross income or deductions in two or section 3.01(2) of this revenue procedure,
more consecutively filed federal tax re- section 3 of this revenue procedure applies
This revenue procedure provides an au-
turns. See Rev. Rul. 90–38. The Internal to a taxpayer that is changing from an im-
tomatic consent procedure allowing a tax-
Revenue Service and Treasury Department permissible method of accounting for de-
payer to make a change in method of ac-
recognize that this two-year rule increases preciation to a permissible method of ac-
counting under § 446(e) of the Internal
administrative and compliance costs as- counting for depreciation for any item of
Revenue Code for depreciable or amorti-
sociated with changes in depreciation depreciable or amortizable property sub-
zable property after its disposition. This
because many taxpayers changing from ject to § 1.446–1T(e)(2)(ii)(d):
revenue procedure also waives the appli-
an impermissible to permissible method (a) that has been disposed of by the tax-
cation of the two-year rule set forth in Rev.
of accounting for depreciation used the payer during the year of change (as defined
Rul. 90–38, 1990–1 C.B. 57, for certain
impermissible method for depreciable or in section 3.02(2)(b) of this revenue proce-
changes in depreciation or amortization.
amortizable properties placed in service in dure); and
Finally, this revenue procedure modifies
two or more taxable years before the year (b) for which the taxpayer did not take
Rev. Proc. 2002–9, 2002–1 C.B. 327 (as
of change as well as for depreciable and into account any depreciation allowance,
modified by Rev. Proc. 2002–54, 2002–2
amortizable properties placed in service or did take into account some deprecia-
C.B. 432, Rev. Proc. 2002–19, 2002–1
in the taxable year immediately preceding tion but less than the depreciation allow-
C.B. 696, Rev. Proc. 2002–33, 2002–1
the year of change. Accordingly, in the able (hereinafter, both are referred to as
C.B. 963, and as modified and clarified
interest of sound tax administration, the “claimed less than the depreciation allow-
by Announcement 2002–17, 2002–1 C.B.
Service and Treasury Department have able”), in the year of change (as defined
561), and other revenue procedures to con-
decided to waive the two-year rule in Rev. in section 3.02(2)(b) of this revenue pro-
form with § 1.446–1T(e)(2)(ii)(d) of the
Rul. 90–38 for a change in depreciation to cedure) or any prior taxable year.
temporary Income Tax Regulations.
which § 1.446–1T(e)(2)(ii)(d) applies. (2) Inapplicability. Section 3 of this
SECTION 2. BACKGROUND .04 If a depreciable or amortizable revenue procedure does not apply to:
property is transferred in a transaction (a) any property to which § 1016(a)(3)
.01 Section 446(e) and § 1.446–1T(e) in which the transferee is treated as the (regarding property held by a tax-exempt
provide that, except as otherwise pro- transferor for purposes of computing the organization) applies;
vided, a taxpayer must secure the consent depreciation allowance for the property (b) any property for which a taxpayer is
of the Commissioner of Internal Revenue with respect to so much of the basis in the revoking a timely valid depreciation elec-
before changing a method of accounting hands of the transferee as does not exceed tion, or making a late depreciation elec-
for federal income tax purposes. Sec- the adjusted depreciable basis in the hands tion, under the Code or regulations there-
tion 1.446–1T(e)(3)(ii) authorizes the of the transferor (for example, in transac- under, or under other guidance published
Commissioner to prescribe administrative tions subject to § 168(i)(7) or § 381(c)(6)), in the Internal Revenue Bulletin (including
procedures setting forth the limitations, the transferee may file a Form 3115, Appli- under § 13261(g)(2) or (3) of the Revenue
terms, and conditions deemed necessary cation for Change in Accounting Method, Reconciliation Act of 1993, 1993–3 C.B.
to permit a taxpayer to obtain consent to to change from an impermissible method 1, 128 (relating to amortizable § 197 intan-
change a method of accounting. of accounting adopted by the transferor for gibles));
.02 Concurrently with the is- that portion of the basis of the property to a (c) any property for which the taxpayer
suance of this revenue proce- permissible method of accounting for de- deducted the cost or other basis of the
dure, §§ 1.446–1T(e)(2)(ii)(d) and preciation for the same portion of the basis property as an expense; or
1.1016–3T(h) have been promulgated. of the property, provided the impermissi- (d) any property disposed of by the tax-
Section 1.446–1T(e)(2)(ii)(d) provides ble method of accounting for that portion payer in a transaction to which a non-
the changes in depreciation or amorti- of the basis of the property has not been recognition section of the Code applies
2004-3 I.R.B. 311 January 20, 2004

(for example, § 1031, transactions subject the examining agent, appeals officer, or property by filing an amended federal tax
to § 168(i)(7)(B)(i)). However, this sec- counsel for the government, as appropri- return for the placed-in-service year prior
tion 3.01(2)(d) does not apply to property ate, at the time the copy of the Form 3115 to the date the taxpayer files its federal tax
disposed of by the taxpayer in a § 1031 or is filed with the national office. The Form return for the taxable year succeeding the
§ 1033 transaction if the taxpayer elects to 3115 must contain the name(s) and tele- placed-in-service year.
treat the entire basis (that is, both the car- phone number(s) of the examining agent, .02 Additional term and condition for
ryover and excess basis) of the acquired appeals officer, or counsel for the govern- filing a Form 3115. In addition to the
MACRS property as property placed in ment, as appropriate. terms and conditions provided in Rev.
service by the taxpayer at the time of re- (b) The year of change is the taxable Proc. 97–27 or Rev. Proc. 2002–9, as
placement and treat the adjusted deprecia- year in which the item of depreciable or applicable, the § 481 adjustment reported
ble basis of the exchanged or involuntarily amortizable property was disposed of by on a Form 3115 that is filed by a taxpayer
converted MACRS property as being dis- the taxpayer. in accordance with section 4.01 of this
posed of by the taxpayer at the time of dis- (c) Section 6.02(3)(a) of Rev. Proc. revenue procedure to make a change in
position. 2002–9 is modified to require the original method of accounting for depreciation un-
.02 Change in method of accounting. of the Form 3115 to be attached to the tax- der § 1.446–1T(e)(2)(ii)(d) for any 1-year
(1) In general. A taxpayer within the payer’s timely filed amended federal tax depreciable property, must include the
scope of section 3 of this revenue proce- return for the year of change and a copy amount of any adjustment attributable to
dure may change from an impermissible (with signature) of the Form 3115 to be all property (including the 1-year depre-
method of accounting for depreciation to a filed with the national office no later than ciable property) subject to the Form 3115.
permissible method of accounting for de- when the original Form 3115 is filed with
preciation for any item of depreciable or the amended federal tax return for the year SECTION 5. EFFECT ON OTHER
amortizable property within the scope of of change. DOCUMENTS
section 3 of this revenue procedure, pro- (d) For purposes of section 6.02(4)(a) of
vided: Rev. Proc. 2002–9, the taxpayer should in- .01 Rev. Proc. 2002–9 is modified
(a) the taxpayer files the original Form clude on line 1a of the Form 3115 (revised and amplified to include the accounting
3115 in accordance with section 3.02(2)(c) December 2003) the designated automatic method change provided under section 3
of this revenue procedure, prior to the expi- accounting method change number for the of this revenue procedure in section 2.05
ration of the period of limitation for assess- change in method of accounting for depre- of the APPENDIX. See section 4 of the
ment under § 6501(a) for the taxable year ciation made under this section 3. This APPENDIX of this revenue procedure for
in which the item of depreciable or amorti- number for this method change is “9.” the text of section 2.05 of the APPENDIX
zable property was disposed of by the tax- of Rev. Proc. 2002–9.
payer; and SECTION 4. WAIVER OF TWO-YEAR .02 The heading for section 2 of the
(b) the taxpayer files an amended fed- RULE IN REV. RUL. 90–38 APPENDIX of Rev. Proc. 2002–9 is mod-
eral tax return for the year of change (as de- ified to read as follows: “SECTION 2.
fined in section 3.02(2)(b) of this revenue .01 In general. Notwithstanding Rev. DEPRECIATION OR AMORTIZATION
procedure) that includes the adjustments Rul. 90–38, a taxpayer may file a Form (§ 56(a)(1), 56(g)(4)(A), 167, 168, 197,
to taxable income and any collateral ad- 3115 under Rev. Proc. 97–27, 1997–1 1400I, OR 1400L, OR FORMER § 168)”.
justments to taxable income or tax liability C.B. 680 (or its successor), or Rev. Proc. .03 Rev. Proc. 2002–9 (as modified
(for example, adjustments to the amount or 2002–9, as applicable, to change from by Rev. Proc. 2002–33) is modified by
character of the gain or loss of the disposed an impermissible method of account- deleting sections 2.01, 2.02, and 2B of the
depreciable or amortizable property) re- ing for depreciation to a permissible APPENDIX and replacing them with the
sulting from the change in method of ac- method of accounting for depreciation text in, respectively, sections 1, 2, and 3 of
counting for depreciation made by the tax- under § 1.446–1T(e)(2)(ii)(d) for any de- the APPENDIX of this revenue procedure.
payer under this section 3. preciable or amortizable property subject .04 Section 6.03 of Rev. Proc.
(2) Application Procedures. A taxpayer to § 1.446–1T(e)(2)(ii)(d) and placed in 2000–38, 2000–2 C.B. 310, 313,
making a change in method of account- service by the taxpayer in the taxable is modified by deleting “See
ing under section 3 of this revenue proce- year immediately preceding the year of § 1.446–1(e)(2)(ii)(b).” and replacing
dure must follow the automatic change in change (as defined in section 5.02(2) of it with “See § 1.446–1T(e)(2)(ii)(d)(3)(i).”
method of accounting provisions in Rev. Rev. Proc. 97–27 or section 5.02 of Rev. .05 Section 8.01 of Rev. Proc.
Proc. 2002–9 (or its successor), with the Proc. 2002–9, as applicable) (hereinafter, 2000–50, 2000–2 C.B. 601, is modi-
following modifications: this property is referred to as “1-year fied to read as follows: “A change in
(a) The scope limitations in section 4.02 depreciable property”), provided the addi- a taxpayer’s treatment of costs paid or
of Rev. Proc. 2002–9 do not apply. If the tional term and condition in section 4.02 incurred to develop, purchase, lease, or
taxpayer is under examination, before an of this revenue procedure is satisfied. Al- license computer software to a method
appeals office, or before a federal court at ternatively, the taxpayer may make the described in section 5, 6, or 7 of this rev-
the time that a copy of the Form 3115 is change from the impermissible depreci- enue procedure is a change in method
filed with the national office, the taxpayer ation method to the permissible depreci- of accounting to which §§ 446 and 481
must provide a copy of the Form 3115 to ation method for the 1-year depreciable apply. Further, a change in useful life
January 20, 2004 312 2004-3 I.R.B.

under the method described in section federal tax return for the requested year of (iii) for which depreciation is deter-
5.01(2) or 6.01(2) of this revenue proce- change (as defined in section 5.02 of Rev. mined under § 56(a)(1), § 56(g)(4)(A),
dure is a change in method of account- Proc. 2002–9) on that Form 3115, the tax- § 167, § 168, § 197, § 1400I, § 1400L(b),
ing. See § 1.446–1T(e)(2)(ii)(d)(3)(i) payer completes a new Form 3115 to make or § 1400L(c), or under § 168 prior to its
and, for the effective date, see the change under section 2.01, 2.02, or 2B, amendment in 1986 (former § 168); and
§ 1.446–1T(e)(4)(ii)(A).” as applicable, of the APPENDIX of Rev. (iv) that is owned by the taxpayer at the
Proc. 2002–9 as revised by this revenue beginning of the year of change (but see
SECTION 6. EFFECTIVE DATE procedure and files this newly completed section 2.05 of this APPENDIX for prop-
Form 3115 in duplicate in accordance with erty disposed of before the year of change).
.01 In general. Except as provided in section 6.02(3)(a) of Rev. Proc. 2002–9. (b) Taxpayer has not adopted a method
section 6.02 of this revenue procedure, this Additionally, the newly completed Form of accounting for the item of property.
revenue procedure is effective for a Form 3115 must include the statement: “Section If a taxpayer does not satisfy section
3115 filed for taxable years ending on or [insert, as appropriate: 2.01, 2.02, or 2B] 2.01(1)(a)(i) of this APPENDIX for an
after December 30, 2003. of the APPENDIX of Rev. Proc. 2002–9 item of depreciable or amortizable prop-
.02 Transition rule for previously filed as revised by Rev. Proc. 2004–11.” This erty because this item of property is placed
Forms 3115 for automatic consent. statement must be legibly printed or typed in service by the taxpayer in the taxable
(1) For a taxable year ending on or after on the appropriate line on, or at the top of year immediately preceding the year of
December 30, 2003, a taxpayer may make page 1 of, the Form 3115. change (“1-year depreciable property”),
a change in method of accounting pre- the taxpayer may change from the im-
viously authorized in section 2.01, 2.02, SECTION 7. DRAFTING permissible depreciation method to the
or 2B of the APPENDIX of Rev. Proc. INFORMATION permissible depreciation method for the
2002–9 before any amendments were 1-year depreciable property by filing a
made to those sections by this revenue The principal author of this revenue Form 3115 for this change, provided the
procedure if: procedure is Sara Logan of the Office of § 481 adjustment reported on the Form
(a) before December 30, 2003, the tax- Associate Chief Counsel (Passthroughs 3115 includes the amount of any adjust-
payer filed a completed Form 3115 with and Special Industries). For further infor- ment that is attributable to all property
the national office to make that change in mation regarding this revenue procedure, (including the 1-year depreciable prop-
method of accounting; and contact Ms. Logan or Douglas Kim at erty) subject to the Form 3115. Alter-
(b) the taxpayer makes that change in (202) 622–3110 (not a toll-free call). natively, the taxpayer may change from
method of accounting in compliance with the impermissible depreciation method
all the applicable provisions of Rev. Proc. APPENDIX
to the permissible depreciation method
2002–9 for the requested year of change for a 1-year depreciable property by fil-
(as defined in section 5.02 of Rev. Proc. SECTION 1. Section 2.01 of the
APPENDIX of Rev. Proc 2002–9 is ing an amended federal tax return for the
2002–9) on that Form 3115. property’s placed-in-service year prior to
(2) If a taxpayer filed a Form 3115 with deleted and replaced with the following:
the date the taxpayer files its federal tax
the national office to make a change in return for the taxable year succeeding the
“.01 Impermissible to permissible
method of accounting previously autho- placed-in-service year.
method of accounting for depreciation
rized in section 2.01, 2.02, or 2B of the (c) Certain scope limitations inappli-
or amortization.
APPENDIX of Rev. Proc. 2002–9 be- cable. The scope limitations in sections
(1) Description of change and scope.
fore any amendments were made to those 4.02(7) and 4.02(8) of this revenue proce-
(a) Applicability. This change applies
sections by this revenue procedure for dure are not applicable to this change.
to a taxpayer that wants to change from
a year of change for which this revenue (d) Inapplicability. This change does
an impermissible to a permissible method
procedure is effective (see section 6.01 of not apply to:
of accounting for depreciation or amortiza-
this revenue procedure) and the taxpayer’s (i) any property to which § 1016(a)(3)
tion (depreciation) for any item of depre-
original federal tax return for that year of (regarding property held by a tax-exempt
ciable or amortizable property:
change was not filed before December 30, organization) applies;
(i) for which the taxpayer used the im-
2003, the taxpayer may make the change (ii) any taxpayer that is subject to
permissible method of accounting in at
in method of accounting authorized under § 263A and that is required to capital-
least the two taxable years immediately
section 2.01, 2.02, or 2B, as applicable, of ize the costs with respect to which the
preceding the year of change (but see
the APPENDIX of Rev. Proc. 2002–9 as taxpayer wants to change its method of
section 2.01(1)(b) of this APPENDIX for
revised by this revenue procedure. How- accounting under section 2.01 of this AP-
property placed in service in the taxable
ever, the Service will process the Form PENDIX, if the taxpayer is not capitalizing
year immediately preceding the year of
3115 in accordance with the section of the costs as required;
change);
the APPENDIX of Rev. Proc. 2002–9 in (iii) any property for which a taxpayer
(ii) for which the taxpayer is making
effect on the date on which the Form 3115 is making a change in depreciation under
a change in method of accounting under
was filed with the national office by the § 1.446–1T(e)(2)(ii)(d)(2)(vi) or (vii);
§ 1.446–1T(e)(2)(ii)(d);
taxpayer unless on or before the due date
(including extensions) of the taxpayer’s
2004-3 I.R.B. 313 January 20, 2004

(iv) any property subject to § 167(g) (xi) any change in method of account- (B) a change in the character of a trans-
(regarding property depreciated under the ing involving a change from one permissi- action from sale to lease, or vice versa (but
income forecast method); ble method of accounting for the property see section 2.03 of this APPENDIX for
(v) any § 1250 property that a taxpayer to another permissible method of account- making this change);
is reclassifying to an asset class of Rev. ing for the property. For example: (xiv) a change from determining depre-
Proc. 87–56, 1987–2 C.B. 674, or Rev. (A) a change from the straight-line ciation under § 168 to determining depre-
Proc. 83–35, 1983–1 C.B. 745, as ap- method of depreciation to the income ciation under former § 168 for any property
propriate, that does not explicitly include forecast method of depreciating for video- subject to the transition rules in § 203(b)
§ 1250 property (for example, asset class cassettes. See Rev. Rul. 89–62, 1989–1 or 204(a) of the Tax Reform Act of 1986,
57.0, Distributive Trades and Services); C.B. 78; or 1986–3 (Vol. 1) C.B. 1, 60–80; or
(vi) any property for which a taxpayer is (B) a change from charging the depre- (xv) any change in the placed-in-service
revoking a timely valid election, or making ciation reserve with costs of removal and date of a depreciable or amortizable prop-
a late election, under § 167, § 168, § 1400I, crediting the depreciation reserve with sal- erty. This change is corrected by adjust-
§ 1400L, former § 168, or § 13261(g)(2) vage proceeds to deducting costs of re- ments in the applicable taxable year pro-
or (3) of the Revenue Reconciliation Act moval as an expense (provided the costs vided under § 1.446–1T(e)(2)(ii)(d)(3)(v).
of 1993 (1993 Act), 1993–3 C.B. 1, 128 of removal are not required to be capital- (2) Additional requirements. A tax-
(relating to amortizable § 197 intangibles). ized under any provision of the Code, such payer also must comply with the follow-
A taxpayer may request consent to revoke as, § 263(a)) and including salvage pro- ing:
or make the election by submitting a re- ceeds in taxable income (see section 2.02 (a) Permissible method of accounting
quest for a letter ruling under Rev. Proc. of this APPENDIX for making this change for depreciation. A taxpayer must change
2003–1, 2003–1 I.R.B. 1 (or any succes- for property for which depreciation is de- to a permissible method of accounting for
sor). See § 1.446–1T(e)(2)(ii)(d)(3)(iii); termined under § 167); depreciation for the item of depreciable
(vii) any property for which deprecia- (xii) any change in method of account- or amortizable property. The permissible
tion is determined under § 56(g)(4)(A) or ing involving both a change from treat- method of accounting is the same method
§ 167 (other than under § 168, § 1400I, ing the cost or other basis of the prop- that determines the depreciation allowable
§ 1400L, or former § 168) and a tax- erty as nondepreciable or nonamortizable for the item of property (as provided in sec-
payer is changing the useful life of the property to treating the cost or other basis tion 2.01(5) of this APPENDIX).
property. A change in the useful life of the property as depreciable or amortiz- (b) Statements required. A taxpayer
of property is corrected by adjustments able property and the adoption of a method must provide the following statements, if
in the applicable taxable year provided of accounting for depreciation requiring applicable, and attach them to the com-
under § 1.446–1T(e)(2)(ii)(d)(3)(i). How- an election under § 167, § 168, § 1400I, pleted application:
ever, this section 2.01(1)(d)(vii) of this § 1400L(b), former § 168, or § 13261(g)(2) (i) a detailed description of the former
APPENDIX does not apply if the tax- or (3) of the 1993 Act (for example, a and new methods of accounting. A general
payer is changing to or from a useful change in the treatment of the space con- description of these methods of account-
life, recovery period, or amortization pe- sumed in landfills placed in service in 1990 ing is unacceptable (for example, MACRS
riod that is specifically assigned by the from nondepreciable to depreciable prop- to MACRS, erroneous method to proper
Internal Revenue Code (for example, erty (assuming section 2.01(1)(d)(xiii) of method, claiming less than the deprecia-
§ 167(f)(1), § 168(c)), the regulations the APPENDIX does not apply) and the tion allowable to claiming the depreciation
thereunder, or other guidance published making of an election under § 168(f)(1) to allowable);
in the Internal Revenue Bulletin and, depreciate this property under the unit of (ii) to the extent not provided elsewhere
therefore, this change is a change in production method of depreciation under on the application, a statement describing
method of accounting (unless section § 167); the taxpayer’s business or income-produc-
2.01(1)(d)(xv) of this APPENDIX ap- (xiii) any change in method of accounting activities. Also, if the taxpayer has
plies). See § 1.446–1T(e)(2)(ii)(d)(3)(i); ing for any item of income or deduction more than one business or income-produc-
(viii) any depreciable property other than depreciation, even if the change ing activity, a statement describing the tax-
for which the use changes in the results in a change in computing depreci- payer’s business or income-producing ac-
hands of the same taxpayer. See ation under § 1.446–1T(e)(2)(ii)(d)(2)(i), tivity in which the item of property at issue
§ 1.446–1T(e)(2)(ii)(d)(3)(ii); (ii), (iii), (iv), (v), (vi), (vii), or (viii). For is primarily used by the taxpayer;
(ix) any property for which depre- example, a change in method of account- (iii) to the extent not provided else-
ciation is determined in accordance ing involving: where on the application, a statement of the
with § 1.167(a)–11 (regarding the Class (A) a change in inventory costs (for ex- facts and law supporting the new method
Life Asset Depreciation Range System ample, when property is reclassified from of accounting, new classification of the
(ADR)); inventory property to depreciable property, item of property, and new asset class in,
(x) any change in method of accounting or vice versa) (but see section 3.02 of this as appropriate, Rev. Proc. 87–56 or Rev.
involving a change from deducting the cost APPENDIX for making a change from in- Proc. 83–35. If the taxpayer is the owner
or other basis of any property as an expense ventory property to depreciable property and lessor of the item of property at issue,
to capitalizing and depreciating the cost or for unrecoverable line pack gas or unre- the statement of the facts and law support-
other basis; coverable cushion gas); or ing the new asset class also must describe
January 20, 2004 314 2004-3 I.R.B.

the business or income-producing activity is devoted to the sale of petroleum prod- described in section 2.01(1)(b) of this AP-
in which that item of property is primarily ucts (not including floor space devoted PENDIX that is included in the taxpayer’s
used by the lessee; to related services, such as oil changes Form 3115), for open and closed years
(iv) to the extent not provided elsewhere and floor space devoted to nonpetroleum prior to the year of change. However,
on the application, a statement identifying products such as tires and oil filters), or the amount of the § 481(a) adjustment
the year in which the item of property was (C) the time of § 1250 property is 1,400 must be adjusted to account for the proper
placed in service; square feet or less.”; and amount of the depreciation allowable that
(v) if the item of property is depreciated (viii) if the taxpayer is changing the is required to be capitalized under any pro-
under former § 168, a statement identify- classification of an item of property from vision of the Code (for example, § 263A)
ing the asset class in Rev. Proc. 83–35 § 1250 property to § 1245 property un- at the beginning of the year of change.
that applies under the taxpayer’s former der § 168 or former § 168, a statement (4) Basis adjustment. As of the begin-
and new methods of accounting (if none, of the facts and law supporting the new ning of the year of change, the basis of de-
state and explain); § 1245 property classification, and a state- preciable property to which section 2.01 of
(vi) if any item of property is public ment containing the following represen- this APPENDIX applies must reflect the
utility property within the meaning of tation: “Each item of depreciable prop- reductions required by § 1016(a)(2) for the
§ 168(i)(10) or former § 167(l)(3)(A), as erty that is the subject of the application depreciation allowable for the property (as
applicable, a statement providing that the filed under section 2.01 of the APPEN- determined under section 2.01(5) of this
taxpayer agrees to the following additional DIX of Rev. Proc. 2002–9 for the year APPENDIX).
terms and conditions: of change beginning [Insert the date], and (5) Meaning of depreciation allowable.
(A) a normalization method of ac- that is reclassified from [Insert, as appro- (a) In general. Section 2.01(5) of this
counting (within the meaning of former priate: nonresidential real property, resi- APPENDIX provides the amount of the
§ 167(l)(3)(G), former § 168(e)(3)(B), or dential rental property, 19-year real prop- depreciation allowable determined under
§ 168(i)(9), as applicable) will be used for erty, 18-year real property, or 15-year real § 56(a)(1), § 56(g)(4)(A), § 167, § 168,
the public utility property subject to the property] to an asset class of [Insert, as § 197, § 1400I, or § 1400L(c), or former
application; appropriate, either: Rev. Proc. 87–56, § 168. This amount, however, may be lim-
(B) as of the beginning of the year of 1987–2 C.B. 674, or Rev. Proc. 83–35, ited by other provisions of the Code (for
change, the taxpayer will adjust its de- 1983–1 C.B. 745] that does not explicitly example, § 280F).
ferred tax reserve account or similar re- include § 1250 property, is § 1245 property (b) Section 56(a)(1) property. The de-
serve account in the taxpayer’s regulatory for depreciation purposes.” preciation allowable for any taxable year
books of account by the amount of the de- (3) Section 481(a) adjustment. Be- for property for which depreciation is de-
ferral of federal income tax liability asso- cause the adjusted basis of the prop- termined under § 56(a)(1) is determined by
ciated with the § 481(a) adjustment appli- erty is changed as a result of a method using the depreciation method, recovery
cable to the public utility property subject change made under section 2.01 of this period, and convention provided for under
to the application; and APPENDIX (see section 2.01(4) of this § 56(a)(1) that applies for the property’s
(C) within 30 calendar days of filing the APPENDIX), items are duplicated or placed-in-service date.
federal income tax return for the year of omitted. Accordingly, this change is made (c) Section 56(g)(4)(A) property. The
change, the taxpayer will provide a copy with a § 481(a) adjustment. This ad- depreciation allowable for any taxable
of the completed application to any reg- justment may result in either a negative year for property for which depreciation is
ulatory body having jurisdiction over the § 481(a) adjustment (a decrease in taxable determined under § 56(g)(4)(A) is deter-
public utility property subject to the appli- income) or a positive § 481(a) adjust- mined by using the depreciation method,
cation; ment (an increase in taxable income) and recovery period or useful life, as appli-
(vii) if the taxpayer is changing the may be a different amount for regular tax, cable, and convention provided for under
classification of an item of § 1250 prop- alternative minimum tax, and adjusted § 56(g)(4)(A) that applies for the prop-
erty placed in service after August 19, current earnings purposes. This § 481(a) erty’s placed-in-service date.
1996, to a retail motor fuels outlet under adjustment equals the difference between (d) Section 167 property. Generally, for
§ 168(e)(3)(E)(iii), a statement containing the total amount of depreciation taken any taxable year, the depreciation allow-
the following representation: “For pur- into account in computing taxable in- able for property for which depreciation is
poses of § 168(e)(3)(E)(iii) of the Internal come for the property under the taxpayer’s determined under § 167, is determined ei-
Revenue Code, the taxpayer represents former method of accounting (including ther:
that (A) 50 percent or more of the gross the amount attributable to any property (i) under the depreciation method
revenue generated from the item of § 1250 described in section 2.01(1)(b) of this adopted by a taxpayer for the property;
property is from the sale of petroleum APPENDIX that is included in the tax- or
products (not including gross revenue payer’s Form 3115), and the total amount (ii) if that depreciation method does not
from related services, such as the labor of depreciation allowable for the prop- result in a reasonable allowance for depre-
cost of oil changes and gross revenue from erty under the taxpayer’s new method of ciation or a taxpayer has not adopted a de-
the sale of nonpetroleum products such as accounting (as determined under section preciation method for the property, under
tires and oil filters), (B) 50 percent or more 2.01(5) of this APPENDIX, and including the straight-line depreciation method.
of the floor space in the item of property the amount attributable to any property
2004-3 I.R.B. 315 January 20, 2004

For determining the estimated useful see Rev. Proc. 2002–33, 2002–1 C.B. ing ratably over the 120-month period be-
life and salvage value of the property, see 963, or Rev. Proc. 2003–50, 2003–29 ginning with the month in which the build-
§ 1.167(a)–1(b) and (c), respectively. I.R.B. 119) for the class of property ing is placed in service, the depreciation al-
The depreciation allowable for any tax- (as defined in § 1.168(k)–1T(e)(2) or lowable is determined in accordance with
able year for property subject to § 167(f) § 1.1400L(b)–1T(e)(2), as applicable) in this election.
(regarding certain property excluded from which that property is included. (i) Qualified New York Liberty Zone
§ 197) is determined by using the depre- (f) Section 197 property. The depre- leasehold improvement property. The de-
ciation method and useful life prescribed ciation allowable for any taxable year for preciation allowable for any taxable year
in § 167(f). If computer software is depre- an amortizable § 197 intangible (including for qualified New York Liberty Zone lease-
ciated under § 167(f)(1) and is qualified any property for which a timely election hold improvement property (as defined in
property (as defined in § 168(k)(2) and under § 13261(g)(2) of the 1993 Act was § 1400L(c)(2)) is determined by using the
§ 1.168(k)–1T of the temporary Income made) is determined in accordance with depreciation method and recovery period
Tax Regulations), 50-percent bonus depre- § 1.197–2(f). prescribed in § 1400L(c).”
ciation property (as defined in § 168(k)(4) (g) Former § 168 property. The depre-
and § 1.168(k)–1T), or qualified New ciation allowable for any taxable year for SECTION 2. Section 2.02 of the
York Liberty Zone (Liberty Zone) prop- property subject to former § 168 is deter- APPENDIX of Rev. Proc. 2002–9 is
erty (as defined in § 1400L(b)(2) and mined by using either: deleted and replaced with the following:
§ 1.1400L(b)–1T), the depreciation al- (i) the accelerated method of cost re-
lowable for that computer software under covery applicable to the property (for ex- “.02 Permissible to permissible method
§ 167(f)(1) is also determined by taking ample, for 5-year property, the recovery of accounting for depreciation.
into account the additional first year de- method under former § 168(b)(1)); or (1) Description of change. This change
preciation deduction provided by § 168(k) (ii) the straight-line method appli- applies to a taxpayer that wants to change
or § 1400L(b), as applicable, unless the cable to the property if the property from a permissible method of accounting
taxpayer made a timely valid election not is required to be depreciated under the for depreciation under § 56(g)(4)(A)(iv)
to deduct any additional first year depreci- straight-line method (for example, prop- or § 167 to another permissible method
ation for the computer software. erty described in former § 168(f)(12) or of accounting for depreciation under
(e) Section 168 property. The depre- former § 280F(b)(2)) or if the taxpayer § 56(g)(4)(A)(iv) or § 167. Pursuant
ciation allowable for any taxable year for elected to determine the depreciation al- to § 1.167(a)–7(a) and (c), a taxpayer may
property for which depreciation is deter- lowance under the optional straight-line account for depreciable property either
mined under § 168, is determined as fol- percentage (for example, the straight-line by treating each individual asset as an ac-
lows: method in former § 168(b)(3)). count or by combining two or more assets
(i) by using either: (h) Qualified revitalization building. in a single account and, for each account,
(A) the general depreciation system in The depreciation allowable for any tax- depreciation allowances are computed
§ 168(a); or able year for any qualified revitalization separately.
(B) the alternative depreciation system building (as defined in § 1400I(b)(1)) for (2) Scope.
in § 168(g) if the property is required to which the taxpayer has made a timely valid (a) Applicability. This change applies
be depreciated under the alternative depre- election under § 1400I(a) is determined as to any taxpayer wanting to make a change
ciation system pursuant to § 168(g)(1) or follows: in method of accounting for deprecia-
other provisions of the Code (for exam- (i) if the taxpayer elected to deduct tion specified in section 2.02(3) of this
ple, property described in § 263A(e)(2)(A) one-half of any qualified revitalization APPENDIX for the property in an ac-
or § 280F(b)(1)). Property required to be expenditures (as defined in § 1400I(b)(2)) count:
depreciated under the alternative depreci- chargeable to a capital account with re- (i) for which the present and pro-
ation system pursuant to § 168(g)(1) in- spect to the qualified revitalization build- posed methods of accounting for depreci-
cludes property in a class (as set out in ing for the taxable year in which the build- ation specified in section 2.02(3) of this
§ 168(e)) for which the taxpayer made a ing is placed in service by the taxpayer, the APPENDIX are permissible methods for
timely valid election under § 168(g)(7); depreciation allowable for the property’s the property under § 56(g)(4)(A)(iv) or
and placed-in-service year is equal to one-half § 167; and
(ii) if the property is qualified property, of the qualified revitalization expenditures (ii) that is owned by the taxpayer at the
50-percent bonus depreciation property, for the property and the depreciation al- beginning of the year of change.
or Liberty Zone property, by taking into lowable for the remaining recovery period (b) Certain scope limitations inappli-
account the additional first year depre- of the property is determined using the cable. The scope limitations in sections
ciation deduction provided by § 168(k) general depreciation system of § 168(a) 4.02(7) and 4.02(8) of this revenue proce-
or § 1400L(b), as applicable, unless the or the alternative depreciation system of dure are not applicable to this change.
taxpayer made a timely valid election § 168(g), as applicable; or (c) Inapplicability. This change does
not to deduct the additional first year (ii) if the taxpayer elected to amortize not apply to:
depreciation (or made a deemed elec- all of the qualified revitalization expendi- (i) any taxpayer that is subject to § 263A
tion not to deduct the additional first tures chargeable to a capital account with and that is required to capitalize the costs
year depreciation; for further guidance, respect to the qualified revitalization build- with respect to which the taxpayer wants
January 20, 2004 316 2004-3 I.R.B.

to change its method of accounting under (a) a change from the straight-line the sales (see Rev. Rul. 70–165, 1970–1
section 2.02 of this APPENDIX, if the tax- method to the sum-of-the-years-digits C.B. 43);
payer is not capitalizing the costs as re- method, the sinking fund method, the (j) a change from crediting ordinary in-
quired; unit-of-production method, or the de- come (including the combination method
(ii) any property to which § 1016(a)(3) clining-balance method using any proper of crediting the lesser of estimated sal-
(regarding property held by a tax-exempt percentage of the straight-line rate; vage value or actual salvage proceeds to
organization) applies; (b) a change from the declining-bal- the depreciation reserve, with any excess
(iii) any property described in § 167(f) ance method using any percentage of the of salvage proceeds over estimated salvage
(regarding certain property excluded from straight-line rate to the sum-of-the-years- value credited to ordinary income) with the
§ 197); digits method, the sinking fund method, salvage proceeds realized on normal retire-
(iv) any property subject to § 167(g) or the declining-balance method using a ment sales, to computing and recognizing
(regarding property depreciated under the different proper percentage of the straight- gains and losses on the sales (see Rev. Rul.
income forecast method); line rate; 70–166, 1970–1 C.B. 44);
(v) any property for which depreci- (c) a change from the sum-of-the-years- (k) a change from item accounting for
ation is determined under § 56(a)(1), digits method to the sinking fund method, specific assets to multiple asset accounting
§ 56(g)(4)(A)(i), (ii), (iii), or (v), § 168, the declining-balance method using any for the same assets, or vice versa;
§ 1400I, § 1400L(b), or § 1400L(c), or proper percentage of the straight-line rate, (l) a change from one type of multiple
§ 168 prior to its amendment in 1986 (for- or the straight-line method; asset accounting (pooling) for specific as-
mer § 168); (d) a change from the unit-of-produc- sets to a different type of multiple asset ac-
(vi) any property that the taxpayer tion method to the straight-line method; counting (pooling) for the same assets;
elected under § 168(f)(1) or former (e) a change from the sinking fund (m) a change from one method de-
§ 168(e)(2) to exclude from the appli- method to the straight-line method, scribed in Rev. Proc. 2000–38 for amor-
cation of, respectively, § 168 or former the unit-of-production method, the tizing distributor commissions (as defined
§ 168; sum-of-the-years-digits method, or the de- by section 2 of Rev. Proc. 2000–38,
(vii) any property for which depre- clining-balance method using any proper 2000–2 C.B. 310) to another method de-
ciation is determined in accordance percentage of the straight-line rate; scribed in Rev. Proc. 2000–38 for amor-
with § 1.167(a)–11 (regarding the Class (f) a change in the interest factor used tizing distributor commissions; or
Life Asset Depreciation Range System in connection with a compound interest (n) a change from pooling to a single as-
(ADR)); method or sinking fund method; set, or vice versa, for distributor commis-
(viii) any depreciable property (g) a change in averaging convention as sions (as defined by section 2 of Rev. Proc.
for which the taxpayer is changing set forth in § 1.167(a)–10(b). However, as 2000–38, 2000–2 C.B. 310) for which the
the depreciation method pursuant to specifically provided in § 1.167(a)–10(b), taxpayer is using the distribution fee period
§ 1.167(e)–1T(b) of the temporary In- in any taxable year in which an averaging method or the useful life method (both de-
come Tax Regulations (change from de- convention substantially distorts the depre- scribed in Rev. Proc. 2000–38).
clining-balance method to straight-line ciation allowance for the taxable year, it (4) Additional requirements. A tax-
method), § 1.167(e)–1T(c) (certain may not be used (see Rev. Rul. 73–202, payer also must comply with the follow-
changes for § 1245 property), or 1973–1 C.B. 81); ing:
§ 1.167(e)–1T(d) (certain changes for (h) a change from charging the depre- (a) Basis for depreciation. At the be-
§ 1250 property). These changes must be ciation reserve with costs of removal and ginning of the year of change, the basis
made prospectively and are not permitted crediting the depreciation reserve with sal- for depreciation of property to which this
under the cited regulations for property vage proceeds to deducting costs of re- change applies is the adjusted basis of the
for which the depreciation is determined moval as an expense and including salvage property as provided in § 1011 at the end
under § 168, § 1400I, § 1400L, or former proceeds in taxable income as set forth in of the taxable year immediately preceding
§ 168; or § 1.167(a)–8(e)(2). See Rev. Rul. 74–455, the year of change (determined under the
(ix) any distributor commissions (as de- 1974–2 C.B. 63. This change, however, taxpayer’s present method of accounting
fined by section 2 of Rev. Proc. 2000–38, may be made under this revenue procedure for depreciation). If applicable under the
2000–2 C.B. 310) for which the tax- only if: taxpayer’s proposed method of accounting
payer is changing the useful life under (i) the change is applied to all items in for depreciation, this adjusted basis is re-
the distribution fee period method or the the account for which the change is being duced by the estimated salvage value of
useful life method (both described in Rev. made; and the property (for example, a change to the
Proc. 2000–38). A change in this use- (ii) the removal costs are not required straight-line method).
ful life is corrected by adjustments in the to be capitalized under any provision of (b) Rate of depreciation. The rate of
applicable taxable year provided under the Code (for example, § 263(a), 263A, or depreciation for property changed to:
§ 1.446–1T(e)(2)(ii)(d)(3)(i). 280B); (i) the straight-line or the sum-of-the-
(3) Changes covered. Section 2.02 of (i) a change from crediting the depreci- years-digits method of depreciation must
this APPENDIX only applies to the fol- ation reserve with the salvage proceeds re- be based on the remaining useful life of the
lowing changes in methods of accounting alized on normal retirement sales to com- property as of the beginning of the year of
for depreciation: puting and recognizing gains and losses on change; or
2004-3 I.R.B. 317 January 20, 2004

(ii) the declining-balance method of de- 2000–50 describes the method applicable (a) the taxpayer files the original Form
preciation must be based on the useful life to leased or licensed computer software. 3115 with the taxpayer’s amended federal
of the property measured from the placed- If a taxpayer treats the costs of computer tax return for the year of change (as de-
in-service date, and not the expected re- software in accordance with the applicable fined in section 2.05(3) of this APPEN-
maining life from the date the change be- method described in Rev. Proc. 2000–50, DIX) prior to the expiration of the period of
comes effective. the Service will not disturb the taxpayer’s limitation for assessment under § 6501(a)
(c) Regulatory requirements. For treatment of its costs of computer software. for the taxable year in which the item of de-
changes in method of depreciation to .02 Scope. This change applies to all preciable or amortizable property was dis-
the sum-of-the-years-digits or declin- costs of computer software as defined in posed of by the taxpayer; and
ing-balance method, the property must section 2 of Rev. Proc. 2000–50. How- (b) the taxpayer’s amended federal tax
meet the requirements of § 1.167(b)–0 or ever, this change does not apply to any return for the year of change (as defined
1.167(c)–1, as appropriate. computer software that is subject to amor- in section 2.05(3) of this APPENDIX) in-
(d) Public utility property. If any item tization as an “amortizable section 197 includes the adjustments to taxable income
of property is public utility property within tangible” as defined in § 197(c) and the and any collateral adjustments to taxable
the meaning of former § 167(l)(3)(A), the regulations thereunder, or to costs that a income or tax liability (for example, ad-
taxpayer must attach to the application taxpayer has treated as research and exper- justments to the amount or character of the
a statement providing that the taxpayer imentation expenditures under § 174. gain or loss of the disposed depreciable
agrees to the following additional terms .03 Statement required. If a taxpayer or amortizable property) resulting from the
and conditions: is changing to the method described in change in method of accounting for depre-
(i) a normalization method of ac- section 5.01(2) of Rev. Proc. 2000–50, ciation made by the taxpayer under section
counting within the meaning of former the taxpayer must attach to the application 2.05 of this APPENDIX.
§ 167(l)(3)(G) will be used for the public a statement providing the information re- (3) Year of change. The year of change
utility property subject to the application; quired in section 8.02(2) of Rev. Proc. for this change is the taxable year in which
and 2000–50.” the item of depreciable or amortizable
(ii) within 30 calendar days of filing the property was disposed of by the taxpayer.
federal income tax return for the year of SECTION 4. Section 2.05 of the (4) Scope limitations inapplicable. The
change, the taxpayer will provide a copy APPENDIX of Rev. Proc. 2002–9 is scope limitations in section 4.02 of this
of the completed application to any reg- added to read as follows: revenue procedure do not apply. If the tax-
ulatory body having jurisdiction over the payer is under examination, before an ap-
public utility property subject to the appli- “.05 Impermissible to permissible peals office, or before a federal court at the
cation. method of accounting for depreciation time that a copy of the Form 3115 is filed
(5) Section 481(a) adjustment. Because or amortization for disposed depreciable with the national office, the taxpayer must
the adjusted basis of the property is not or amortizable property. provide a copy of the Form 3115 to the ex-
changed as a result of a method change (1) Description of change. This change amining agent, appeals officer, or counsel
made under section 2.02 of this APPEN- applies to a taxpayer that wants to make for the government, as appropriate, at the
DIX, no items are being duplicated or the change in method of accounting for de- time the copy of the Form 3115 is filed
omitted. Accordingly, no § 481(a) adjust- preciation or amortization (depreciation) with the national office. The Form 3115
ment is required or necessary.” provided under section 3 of Rev. Proc. must contain the name(s) and telephone
2004–11, 2004–3 I.R.B. 311, for an item number(s) of the examining agent, appeals
SECTION 3. Section 2B of the of depreciable or amortizable property that officer, or counsel for the government, as
APPENDIX of Rev. Proc. 2002–9 is has been disposed of by the taxpayer. Sec- appropriate.
deleted and replaced with the following: tion 3 of Rev. Proc. 2004–11 allows a tax- (5) Filing requirements. Notwithstand-
payer to make a change in method of ac- ing section 6.02(3)(a) of this revenue
“SECTION 2B. COMPUTER counting for depreciation for the disposed procedure, a taxpayer making this change
SOFTWARE EXPENDITURES property if the taxpayer used an impermis- must attach the original Form 3115 to the
(§§ 162, 167, AND 197) sible method of accounting for deprecia- taxpayer’s timely filed amended federal
tion for the property under which the tax- tax return for the year of change and must
.01 Description of change. This change payer did not take into account any depre- file the required copy (with signature) of
applies to a taxpayer that wants to change ciation allowance, or did take into account the Form 3115 with the national office no
its method of accounting for the costs of some depreciation but less than the depre- later than when the original Form 3115 is
computer software to a method described ciation allowable, in the year of change (as filed with the amended federal tax return
in Rev. Proc. 2000–50, 2000–2 C.B. 601. defined in section 2.05(3) of this APPEN- for the year of change.
Section 5 of Rev. Proc. 2000–50 describes DIX) or any prior taxable year. (6) Section 481(a) adjustment period.
the methods applicable to the costs of de- (2) Scope. This change applies to a tax- A taxpayer must take the § 481(a) adjust-
veloping computer software. Section 6 of payer and an item of depreciable or amorti- ment into account in the year of change.”
Rev. Proc. 2000–50 describes the method zable property that are within the scope of
applicable to the costs of acquired com- section 3.01 of Rev. Proc. 2004–11, pro-
puter software. Section 7 of Rev. Proc. vided:
January 20, 2004 318 2004-3 I.R.B.

Part IV. Items of General Interest
Notice of Proposed SUPPLEMENTARY INFORMATION: vision, a corporation must submit with its
Rulemaking by income tax return a supporting statement
Paperwork Reduction Act and a copy of the board of directors’ res-
Cross-Reference to
olution authorizing the contribution. The
Temporary Regulations The collection of information contained proposed regulation eliminates the need
in this notice of proposed rulemaking has to submit the resolution with the return,
Guidance Necessary to been submitted to the Office of Manage- but provides that the supporting statement
Facilitate Business Electronic ment and Budget for review in accordance must identify the date of the resolution.
with the Paperwork Reduction Act of 1995 This information regarding the timing of
Filing (44 U.S.C. 3507(d)). Comments on the board action is required to be reported to
collection of information should be sent to
REG–116664–01 help ensure that taxpayers properly doc-
the Office of Management and Budget, ument their entitlement to deductions for
AGENCY: Internal Revenue Service Attn: Desk Officer for the Department charitable contributions. The IRS cannot
(IRS), Treasury. of the Treasury, Office of Information ascertain this information from the board
and Regulatory Affairs, Washington, DC resolution itself since, as noted above, tax-
ACTION: Notice of proposed rulemaking 20503, with copies to the Internal Rev- payers will no longer have to submit that
by cross-reference to temporary regula- enue Service, Attn: IRS Reports Clear- document with their returns. The collec-
tions. ance Officer, SE:W:CAR:MP:T:T:SP, tion of information is mandatory. The
Washington, DC 20224. Comments on likely respondents are for-profit corpora-
SUMMARY: In this issue of the Bulletin, the collection of information should be re-
the IRS is issuing temporary regulations tions.
ceived by February 17, 2004. Comments Estimated total annual reporting bur-
(T.D. 9100) designed to eliminate regula- are specifically requested concerning:
tory impediments to the electronic filing den: 250,000 hours.
Whether the proposed collection of in- Estimated average annual burden hours
of certain business income tax returns and formation is necessary for the proper per-
other forms. Those regulations affect busi- per respondent: .25 hours.
formance of the functions of the Internal Estimated number of respondents:
ness taxpayers who file income tax returns Revenue Service, including whether the
electronically. The text of those regula- 1,000,000.
information will have practical utility; Estimated annual frequency of re-
tions also serves as the text of these pro- The accuracy of the estimated burden
posed regulations. sponses: annually.
associated with the proposed collection of An agency may not conduct or sponsor,
information (see below); and a person is not required to respond to, a
DATES: Written or electronic comments
How the quality, utility, and clarity of collection of information unless it displays
and requests for a public hearing must be
the information to be collected may be en- a valid control number assigned by the Of-
received by March 19, 2004.
hanced; fice of Management and Budget.
ADDRESSES: Send submissions to: How the burden of complying with the Books or records relating to a collection
CC:PA:LPD:PR (REG–116664–01), room proposed collection of information may be of information must be retained as long
5203, Internal Revenue Service, POB minimized, including through the appli- as their contents may become material in
7604, Ben Franklin Station, Washing- cation of automated collection techniques the administration of any internal revenue
ton, DC 20044. Submissions may be or other forms of information technology; law. Generally, tax returns and tax return
hand delivered Monday through Friday and information are confidential, as required
between the hours of 8 a.m. and 4 p.m. Estimates of capital or start-up costs by 26 U.S.C. 6103.
to: CC:PA:LPD:PR (REG–116664–01), and costs of operation, maintenance, and
Courier's Desk, Internal Revenue Service, purchase of service to provide information. Background and Explanation of
1111 Constitution Avenue, NW, Wash- The collection of information in this Provisions
ington, DC. Alternatively, taxpayers may proposed regulation is in §1.170A–11T.
submit electronic comments directly to the Section 170 of the Code permits tax de- Temporary regulations (T.D. 9100) in
IRS internet site at www.irs.gov/regs. ductions, within limits, for charitable con- this issue of the Bulletin contain amend-
tributions by individuals and corporations. ments to the Income Tax Regulations (26
FOR FURTHER INFORMATION Section 170(a)(2) provides that under cer- CFR Part 1) and the Procedure and Admin-
CONTACT: Concerning the regulations, tain conditions, corporations may treat a istration Regulations (26 CFR Part 301)
Nathan Rosen (202) 622–4910; concern- charitable contribution as paid during the designed to eliminate regulatory impedi-
ing submissions of comments and/or re- taxable year even if the contribution oc- ments to the electronic filing of certain in-
quests for a hearing, Robin Jones (202) curs in the following taxable year. Existing come tax returns and other forms. The text
622–3521 (not toll-free numbers). regulations provide that to invoke this pro- of those regulations also serves as the text
2004-3 I.R.B. 319 January 20, 2004

of these proposed regulations. The pream- of the Small Business Administration for The revision and addition read as fol-
ble to the temporary regulations explains comment on its impact on small business. lows:
the temporary regulations and these pro-
posed regulations. The regulations gen- Comments and Public Hearing §1.556–2 Adjustments to taxable income.
erally affect taxpayers who must file any
Before these proposed regulations are *****
of the following forms: Form 926, Re-
adopted as final regulations, considera- (e) * * *
turn by a U.S. Transferor of Property to
tion will be given to any written (a signed (2) * * *
a Foreign Corporation; Form 972, Con-
original and eight (8) copies) or electronic (vii) [The text of the proposed amend-
sent of Shareholder To Include Specific
comments that are submitted timely to the ment to §1.556–2(e)(2)(vii) is the same as
Amount in Gross Income; Form 973, Cor-
IRS. The IRS and the Treasury Depart- the text of §1.556–2T(e)(2)(vii) published
poration Claim for Deduction for Consent
ment specifically request comments on elsewhere in this issue of the Bulletin.
Dividends; Form 982, Reduction of Tax
the clarity of the proposed regulations and *****
Attributes Due to Discharge of Indebted-
how they can be made easier to under- (3) [The text of the proposed amend-
ness (and Section 1082 Basis Adjustment);
stand. All comments will be available for ment to §1.556–2(e)(3) is the same as the
Form 1120, U.S. Corporation Income Tax
public inspection and copying. A public text of §1.556–2T(e)(3) published else-
Return; Form 1120S, U.S. Income Tax Re-
hearing may be scheduled if requested by where in this issue of the Bulletin].
turn for an S Corporation; Form 1122,
any person who timely submits comments.
Authorization and Consent of Subsidiary *****
If a public hearing is scheduled, notice of
Corporation To Be Included in a Consol- Par. 4. Section 1.565–1 is amended
the date, time and place for the hearing
idated Income Tax Return; Form 5471, by revising paragraph (b)(3) to read as fol-
will be published in the Federal Register.
Information Return of U.S. Persons With lows:
Respect To Certain Foreign Corporations; Drafting Information
Form 5712–A, Election and Verification of §1.565–1 General rule.
the Cost Sharing or Profit Split Method The principal author of these regula-
Under Section 936(h)(5); and Form 8832, tions is Nathan Rosen, Office of Associate *****
Entity Classification Election. Chief Counsel (Procedure and Administra- (b) * * *
tion), Administrative Provisions and Judi- (3) [The text of the proposed amend-
Special Analyses cial Practice Division. ment to §1.565–1(b)(3) is the same as the
text of §1.565–1T(b)(3) published else-
It has been determined that this notice ***** where in this issue of the Bulletin].
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec- Proposed Amendments to the *****
utive Order 12866. Therefore, a regula- Regulations Par. 5. Section 1.936–7 is amended by
tory assessment is not required. It also has revising paragraph (b), Q.&A. 1 to read as
Accordingly, 26 CFR parts 1 and 301 follows:
been determined that section 553(b) of the
are proposed to be amended as follows:
Administrative Procedure Act (5 U.S.C. §1.936–7 Manner of making elections
chapter 5) does not apply to these regu- PART 1—INCOME TAXES under section 936(h)(5); special election
lations. It is hereby certified that the col- for export sales; revocation of election
lection of information in these regulations Par. 1. The authority citation for part 1 under section 936(a).
will not have a significant economic im- continues to read in part as follows:
pact on a substantial number of small en- Authority: 26 U.S.C. 7805. * * * *****
tities. This certification is based on the Par. 2. Section 1.170A–11 is amended (b) * * *
fact that the collection of information de- by revising paragraph (b)(2) to read as fol- Q.& A. 1 [The text of the proposed
scribed above under the heading “Paper- lows: amendment to §1.936–7(b), Q.& A. 1 is
work Reduction Act” does not affect cor- the same as the text of §1.936–7T(b), Q.&
porations that elect to be taxed under Subti- § 1.170A–11 Limitation on, and carryover A. 1, published elsewhere in this issue of
tle A, Chapter 1, Subchapter S of the Code. of, contributions by corporations. the Bulletin].
Moreover, requiring a corporation to report
***** *****
the information described above concern-
(b) * * * Par. 6. Section 1.1017–1 is amended by
ing board of directors' approval of certain
(2) [The text of the proposed amend- revising paragraph (g)(2)(iii)(B) to read as
charitable contributions imposes virtually
ment to §1.170A–11(b)(2) is the same as follows:
no incremental burden in time or expense.
Therefore, a Regulatory Flexibility Anal- the text of §1.170A–11T(b)(2) published
elsewhere in this issue of the Bulletin]. §1.1017–1 Basis reductions following a
ysis under the Regulatory Flexibility Act discharge of indebtedness.
(5 U.S.C. Chapter 6) is not required. Pur- *****
suant to section 7805(f) of the Code, this Par. 3. Section 1.556–2 is amended by: *****
notice of proposed rulemaking will be sub- 1. Revising paragraph (e)(2)(vii). (g) * * *
mitted to the Chief Counsel for Advocacy 2. Adding paragraph (e)(3). (2) * * *
January 20, 2004 320 2004-3 I.R.B.

(iii) * * * (3) * * * (i) [The text of the proposed (B) [The text of the proposed amend-
(B) [The text of the proposed amend- amendment to §1.1502–21(b)(3)(i) is the ment to §1.1503–2(g)(2)(vi)(B)
ment to §1.1017–1(g)(2)(iii)(B) same as the text of §1.1502–21T(b)(3)(i) is the same as the text of
is the same as the text of published elsewhere in this issue of the §1.1503–2T(g)(2)(vi)(B) published
§1.1017–1T(g)(2)(iii)(B) published Bulletin]. elsewhere in this issue of the Bulletin].
elsewhere in this issue of the Bulletin]. (ii) * * * *****
(B) [The text of the proposed amend- Par. 12. Section 1.6038B–1 is amended
*****
ment to §1.1502–21(b)(3)(ii)(B) by revising paragraphs (b)(1)(i) and
is the same as the text of (b)(1)(ii) to read as follows:
by revising paragraphs (f)(5)(iii) and
§1.1502–21T(b)(3)(ii)(B) published
(g)(2)(iii) to read as follows:
elsewhere in this issue of the Bulletin. §1.6038B–1 Reporting of certain transfers
§1.1368–1 Distributions by S to foreign corporations.
*****
corporations. Par. 10. Section 1.1502–75 is amended *****
by revising paragraph (h)(2) to read as fol- (b) * * * (1) * * * (i) [The
*****
lows: text of the proposed amendments to
(f) * * *
(5) * * * §1.6038B–1(b)(1)(i) is the same as the
§1.1502–75 Filing of consolidated text of §1.6038B–1T(b)(1)(i) published
(iii) [The text of the proposed amend- returns.
ment to §1.1368–1(f)(5)(iii) is the same as elsewhere in this issue of the Bulletin].
the text of §1.1368–1T(f)(5)(iii) published (ii) [The text of the proposed amend-
*****
elsewhere in this issue of the Bulletin]. ment to §1.6038B–1(b)(1)(ii) is the same
(h) * * *
as the text of §1.6038B–1T(b)(1)(ii) pub-
***** (2) [The text of the proposed amend-
lished elsewhere in this issue of the Bul-
(g) * * * ment to §1.1502–75(h)(2) is the same as
letin].
(2) * * * the text of §1.1502–75T(h)(2) published
elsewhere in the issue of the Bulletin]. *****
(iii) [The text of the proposed amend-
ment to §1.1368–1(g)(2)(iii) is the same as ***** PART 301—PROCEDURE AND
the text of §1.1368–1T(g)(2)(iii) published Par. 11. Section 1.1503–2 is ADMINISTRATION
elsewhere in this issue of the Bulletin]. amended by revising paragraphs (g)(2)(i),
(g)(2)(iv)(B)(3)(iii) and (g)(2)(vi)(B) to Par. 13. The authority citation for part
*****
read as follows: 301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
by revising paragraph (b)(5)(i)(C) to read
§1.1503–2 Dual consolidated loss. Par. 14. Section 301.7701–3 is
as follows:
amended by revising paragraph (c)(1)(ii)
§1.1377–1 Pro rata share. ***** to read as follows:
(g) * * *
(2) * * * (i) [The text of the proposed §301.7701–3 Classification of certain
*****
amendment to §1.1503–2(g)(2)(i) is the business entities.
(b) * * *
(5) * * * same as the text of §1.1503–2T(g)(2)(i) *****
(i) * * * published elsewhere in this issue of the (c) * * * (1) * * *
(C) [The text of the proposed amend- Bulletin]. (ii) [The text of the proposed amend-
ment to §1.1377–1(b)(5)(i)(C) is the same ment to §301.7701–3 (c)(1)(ii) is the same
*****
as the text of §1.1377–1T(b)(5)(i)(C) pub- as the text of §301.7701–3T(c)(1)(ii) pub-
(iv) * * *
lished elsewhere in this issue of the Bul- lished elsewhere in this issue of the Bul-
(B) * * *
letin]. letin].
(3) * * *
***** (iii) [The text of the proposed amend- *****
Par. 9. Section 1.1502–21 is amended ment to §1.1503–2(g)(2)(iv)(B)(3)(iii)
by revising paragraphs (b)(3)(i) and is the same as the text of Robert E. Wenzel,
(b)(3)(ii)(B) to read as follows: §1.1503–2T(g)(2)(iv)(B)(3)(iii) pub- Deputy Commissioner for
lished elsewhere in this issue of the Services and Enforcement.
§1.1502–21 Net operating losses. Bulletin]. (Filed by the Office of the Federal Register on December 18,
2003, 8:45 a.m., and published in the issue of the Federal
***** ***** Register for December 19, 2003, 68 F.R. 70747)
(b) * * * (vi) * * *
2004-3 I.R.B. 321 January 20, 2004

New Code W for the 2004
Form W–2, Box 12
Announcement 2004–2
Purpose The purpose of this announcement is to advise employers about an additional code for use
on the 2004 Form W–2. This code will be used to identify the amount of an employer’s
contribution to an employee’s Health Savings Account (HSA).
Health Savings A new code (Code W—Employer’s contribution to an employee’s Health Savings
Accounts Account (HSA)) for use in box 12 on the 2004 Form W–2 has been added to the 2004
(HSA) Instructions for Forms W–2 and W–3.
The Medicare Prescription Drug Improvement and Modernization Act of 2003 requires
reporting of an employer’s contributions to an employee’s HSA on Form W–2. The
amount that an employer contributes to an employee’s HSA will be shown in box 12 of
Form W–2, using Code W.
Generally, employer contributions to an employee’s MSA are not subject to income, social
security/Medicare, or Railroad Retirement taxes and will not affect amounts otherwise
reported in boxes 1, 3, and 5 of Form W–2.
Announcement of Disciplinary Actions Involving

Attorneys, Certified Public Accountants, Enrolled Agents,
and Enrolled Actuaries — Suspensions, Censures,
Disbarments, and Resignations
Announcement 2004-6
Under Title 31, Code of Federal Regu- person to practice before the Internal Rev- their names, their city and state, their pro-
lations, Part 10, attorneys, certified public enue Service during a period of suspen- fessional designation, the effective date
accountants, enrolled agents, and enrolled sion, disbarment, or ineligibility of such of disciplinary action, and the period of
actuaries may not accept assistance from, other person. suspension. This announcement will ap-
or assist, any person who is under disbar- To enable attorneys, certified public pear in the weekly Bulletin at the earliest
ment or suspension from practice before accountants, enrolled agents, and enrolled practicable date after such action and will
the Internal Revenue Service if the assis- actuaries to identify persons to whom continue to appear in the weekly Bulletins
tance relates to a matter constituting prac- these restrictions apply, the Director, Of- for five successive weeks.
tice before the Internal Revenue Service fice of Professional Responsibility will
and may not knowingly aid or abet another announce in the Internal Revenue Bulletin
Disbarments From Practice Before the Internal Revenue

Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Regu- tunity for a proceeding before an adminis- have been disbarred from practice before
lations, Part 10, after notice and an oppor- trative law judge, the following individuals the Internal Revenue Service:
Name Address Designation Effective Date
Baxley II, Milton Gainesville, FL CPA October 24, 2003
January 20, 2004 322 2004-3 I.R.B.

Consent Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu- fore the Internal Revenue Service, may of- tuary in accordance with the consent of-
lations, Part 10, an attorney, certified pub- fer his or her consent to suspension from fered.
lic accountant, enrolled agent, or enrolled such practice. The Director, Office of Pro- The following individuals have been
actuary, in order to avoid institution or con- fessional Responsibility, in his discretion, placed under consent suspension from
clusion of a proceeding for his or her dis- may suspend an attorney, certified public practice before the Internal Revenue Ser-
barment or suspension from practice be- accountant, enrolled agent or enrolled ac- vice:
Name Address Designation Date of Suspension
Nietupski, John E. Springfield, MA Enrolled Agent Indefinite

from
October 15, 2005
Roberts, Dennis C. Oklahoma City, OK Attorney Indefinite
from
October 27, 2003
Waldo-Grant, Barbara A. Grand Rapids, MI Enrolled Agent Indefinite
from
November 1, 2003
Naylor, Dale C. El Cajon, CA Enrolled Agent Indefinite
from
November 12, 2003
Schlude, Richard M. Wilkes Barre, PA Enrolled Agent Indefinite
from
November 19, 2003
Stern, Samuel L. Robbinsdale, MN Attorney Indefinite
from
November 19, 2003
Robles, Michael Dallas, TX CPA Indefinite
from
December 1, 2003
Young Jr., Donald A. Redondo Beach, CA Enrolled Agent December 1, 2003
to
August 31, 2004
Hitchcock, William C. Irvine, CA Enrolled Agent Indefinite
from
December 30, 2003
Willms, Bryant E. Lee Summit, MO Enrolled Agent January 1, 2004
to
December 31, 2004
2004-3 I.R.B. 323 January 20, 2004

Expedited Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu- the expedited proceeding is instituted (1) The following individuals have been
lations, Part 10, the Director, Office of Pro- has had a license to practice as an attorney, placed under suspension from practice be-
fessional Responsibility, is authorized to certified public accountant, or actuary sus- fore the Internal Revenue Service by virtue
immediately suspend from practice before pended or revoked for cause or (2) has been of the expedited proceeding provisions:
the Internal Revenue Service any practi- convicted of certain crimes.
tioner who, within five years from the date
Name Address Designation Date of Suspension
Greene, Marvin Chicago, IL CPA Indefinite

from
October 21, 2003
Bolusky, Eric B. Perkins, OK Attorney Indefinite
from
October 21, 2003
Crutchfield Jr., Ernest Latty, OH Enrolled Agent Indefinite
from
October 21, 2003
Covey, Charles Gladstone, MO CPA Indefinite
from
October 23, 2003
Prosperi, Arnold P. Jupiter Island, FL Attorney Indefinite
from
November 24, 2003
Lucas, Christopher Overland Park, KS Attorney Indefinite
from
November 24, 2003
Ramsey, Henry A. Burnet, TX CPA Indefinite
from
December 15, 2003
Resignations of Enrolled Agents

Under Title 31, Code of Federal Regu- ternal Revenue Service, may offer his or The Director, Office of Professional
lations, Part 10, an enrolled agent, in or- her resignation as an enrolled agent. The Responsibility, has accepted offers of res-
der to avoid the institution or conclusion Director, Office of Professional Responsi- ignation as an enrolled agent from the
of a proceeding for his or her disbarment bility, in his discretion, may accept the of- following individuals:
or suspension from practice before the In- fered resignation.
Name Address Date of Designation
Pettyplace, Edward F. Sacramento, CA January 30, 2004
January 20, 2004 324 2004-3 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures and B, the prior ruling is modified because of a prior ruling, a combination of terms
(hereinafter referred to as “rulings”) that it corrects a published position. (Compare is used. For example, modified and su-
have an effect on previous rulings use the with amplified and clarified, above). perseded describes a situation where the
following defined terms to describe the ef- Obsoleted describes a previously pub- substance of a previously published ruling
fect: lished ruling that is not considered deter- is being changed in part and is continued
Amplified describes a situation where minative with respect to future transac- without change in part and it is desired to
no change is being made in a prior pub- tions. This term is most commonly used in restate the valid portion of the previously
lished position, but the prior position is be- a ruling that lists previously published rul- published ruling in a new ruling that is self
ing extended to apply to a variation of the ings that are obsoleted because of changes contained. In this case, the previously pub-
fact situation set forth therein. Thus, if in laws or regulations. A ruling may also lished ruling is first modified and then, as
an earlier ruling held that a principle ap- be obsoleted because the substance has modified, is superseded.
plied to A, and the new ruling holds that the been included in regulations subsequently Supplemented is used in situations in
same principle also applies to B, the earlier adopted. which a list, such as a list of the names of
ruling is amplified. (Compare with modi- Revoked describes situations where the countries, is published in a ruling and that
fied, below). position in the previously published ruling list is expanded by adding further names in
Clarified is used in those instances is not correct and the correct position is subsequent rulings. After the original rul-
where the language in a prior ruling is be- being stated in a new ruling. ing has been supplemented several times, a
ing made clear because the language has Superseded describes a situation where new ruling may be published that includes
caused, or may cause, some confusion. the new ruling does nothing more than re- the list in the original ruling and the ad-
It is not used where a position in a prior state the substance and situation of a previ- ditions, and supersedes all prior rulings in
ruling is being changed. ously published ruling (or rulings). Thus, the series.
Distinguished describes a situation the term is used to republish under the Suspended is used in rare situations
where a ruling mentions a previously pub- 1986 Code and regulations the same po- to show that the previous published rul-
lished ruling and points out an essential sition published under the 1939 Code and ings will not be applied pending some
difference between them. regulations. The term is also used when future action such as the issuance of new
Modified is used where the substance it is desired to republish in a single rul- or amended regulations, the outcome of
of a previously published position is being ing a series of situations, names, etc., that cases in litigation, or the outcome of a
changed. Thus, if a prior ruling held that a were previously published over a period of Service study.
principle applied to A but not to B, and the time in separate rulings. If the new rul-
new ruling holds that it applies to both A ing does more than restate the substance
Abbreviations
The following abbreviations in current use ER—Employer. PRS—Partnership.
and formerly used will appear in material ERISA—Employee Retirement Income Security Act. PTE—Prohibited Transaction Exemption.
published in the Bulletin. EX—Executor. Pub. L.—Public Law.
F—Fiduciary. REIT—Real Estate Investment Trust.
FC—Foreign Country. Rev. Proc.—Revenue Procedure.
A—Individual.
Acq.—Acquiescence. FICA—Federal Insurance Contributions Act. Rev. Rul.—Revenue Ruling.
FISC—Foreign International Sales Company. S—Subsidiary.
B—Individual.
FPH—Foreign Personal Holding Company. S.P.R.—Statement of Procedural Rules.
BE—Beneficiary.
BK—Bank. F.R.—Federal Register. Stat.—Statutes at Large.
FUTA—Federal Unemployment Tax Act. T—Target Corporation.
B.T.A.—Board of Tax Appeals.
FX—Foreign corporation. T.C.—Tax Court.
C—Individual.
C.B.—Cumulative Bulletin. G.C.M.—Chief Counsel’s Memorandum. T.D. —Treasury Decision.
GE—Grantee. TFE—Transferee.
CFR—Code of Federal Regulations.
GP—General Partner. TFR—Transferor.
CI—City.
COOP—Cooperative. GR—Grantor. T.I.R.—Technical Information Release.
IC—Insurance Company. TP—Taxpayer.
Ct.D.—Court Decision.
I.R.B.—Internal Revenue Bulletin. TR—Trust.
CY—County.
D—Decedent. LE—Lessee. TT—Trustee.
LP—Limited Partner. U.S.C.—United States Code.
DC—Dummy Corporation.
LR—Lessor. X—Corporation.
DE—Donee.
Del. Order—Delegation Order. M—Minor. Y—Corporation.
Nonacq.—Nonacquiescence. Z —Corporation.
DISC—Domestic International Sales Corporation.
O—Organization.
DR—Donor.
E—Estate. P—Parent Corporation.
PHC—Personal Holding Company.
EE—Employee.
PO—Possession of the U.S.
E.O.—Executive Order.
PR—Partner.
2004-3 I.R.B. i January 20, 2004

Numerical Finding List1
Bulletins 2004–1 through 2004–3
Announcements:
2004-1, 2004-1 I.R.B. 254

2004-2, 2004-3 I.R.B. 322
2004-3, 2004-2 I.R.B. 294
2004-6, 2004-3 I.R.B. 322
Notices:
2004-1, 2004-2 I.R.B. 268

2004-2, 2004-2 I.R.B. 269
2004-4, 2004-2 I.R.B. 273
2004-6, 2004-3 I.R.B. 308
2004-7, 2004-3 I.R.B. 310
Proposed Regulations:
REG-116664-01, 2004-3 I.R.B. 319
Revenue Procedures:
2004-1, 2004-1 I.R.B. 1

2004-2, 2004-1 I.R.B. 83
2004-3, 2004-1 I.R.B. 114
2004-4, 2004-1 I.R.B. 125
2004-5, 2004-1 I.R.B. 167
2004-6, 2004-1 I.R.B. 197
2004-7, 2004-1 I.R.B. 237
2004-8, 2004-1 I.R.B. 240
2004-9, 2004-2 I.R.B. 275
2004-10, 2004-2 I.R.B. 288
2004-11, 2004-3 I.R.B. 311
Revenue Rulings:
2004-2, 2004-2 I.R.B. 265

2004-5, 2004-3 I.R.B. 295
Treasury Decisions:
9099, 2004-2 I.R.B. 255

9100, 2004-3 I.R.B. 297
9103, 2004-3 I.R.B. 306
1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2003–27 through 2003–52 is in Internal Revenue Bulletin
2003–52, dated December 29, 2003.
January 20, 2004 ii 2004-3 I.R.B.

Findings List of Current Actions on
Previously Published Items1
Bulletins 2004–1 through 2004–3
Revenue Procedures:
2000-38
Modified by
Rev. Proc. 2004-11, 2004-3 I.R.B. 311
2000-50
Modified by
Rev. Proc. 2004-11, 2004-3 I.R.B. 311
2002-9
Modified by
Rev. Proc. 2004-11, 2004-3 I.R.B. 311
2003-1
Superseded by
Rev. Proc. 2004-1, 2004-1 I.R.B. 1
2003-2
Superseded by
Rev. Proc. 2004-2, 2004-1 I.R.B. 83
2003-3
As amplified by Rev. Proc. 2003-14, and as
modified by Rev. Proc. 2003-48 superseded by
Rev. Proc. 2004-3, 2004-1 I.R.B. 114
2003-4
Superseded by
Rev. Proc. 2004-4, 2004-1 I.R.B. 125
2003-5
Superseded by
Rev. Proc. 2004-5, 2004-1 I.R.B. 167
2003-6
Superseded by
Rev. Proc. 2004-6, 2004-1 I.R.B. 197
2003-7
Superseded by
Rev. Proc. 2004-7, 2004-1 I.R.B. 237
2003-8
Superseded by
Rev. Proc. 2004-8, 2004-1 I.R.B. 240
1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2003–27 through 2003–52 is in Internal Revenue Bulletin 2003–52, dated December 29,
2003.
2004-3 I.R.B. iii *U.S. G.P.O.: 2004—304–774/60118 January 20, 2004

US Internal Revenue Service: Irb04-03

Загружено:

Сведения о документе

Исходное описание:

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

US Internal Revenue Service: Irb04-03

Загружено:

Авторское право:

Доступные форматы

Bulletin No.

INCOME TAX ADMINISTRATIVE

Rev. Rul. 2004–5, page 295. Notice 2004–6, page 308.

T.D. 9100, page 297. Notice 2004–7, page 310.

Announcements of Disbarments and Suspensions begin on page 322.

January 20, 2004 2004-3 I.R.B.

2004-3 I.R.B. 295 January 20, 2004

January 20, 2004 296 2004-3 I.R.B.

2004-3 I.R.B. 297 January 20, 2004

January 20, 2004 298 2004-3 I.R.B.

2004-3 I.R.B. 299 January 20, 2004

January 20, 2004 300 2004-3 I.R.B.

2004-3 I.R.B. 301 January 20, 2004

January 20, 2004 302 2004-3 I.R.B.

2004-3 I.R.B. 303 January 20, 2004

January 20, 2004 304 2004-3 I.R.B.

CFR part or section where Current OMB

Robert E. Wenzel, Gregory F. Jenner, Section 6038B.—Notice

2004-3 I.R.B. 305 January 20, 2004

January 20, 2004 306 2004-3 I.R.B.

2004-3 I.R.B. 307 January 20, 2004

January 20, 2004 308 2004-3 I.R.B.

2004-3 I.R.B. 309 January 20, 2004

January 20, 2004 310 2004-3 I.R.B.

2004-3 I.R.B. 311 January 20, 2004

January 20, 2004 312 2004-3 I.R.B.

2004-3 I.R.B. 313 January 20, 2004

January 20, 2004 314 2004-3 I.R.B.

2004-3 I.R.B. 315 January 20, 2004

January 20, 2004 316 2004-3 I.R.B.

2004-3 I.R.B. 317 January 20, 2004

January 20, 2004 318 2004-3 I.R.B.

2004-3 I.R.B. 319 January 20, 2004

January 20, 2004 320 2004-3 I.R.B.

2004-3 I.R.B. 321 January 20, 2004

Announcement of Disciplinary Actions Involving

Disbarments From Practice Before the Internal Revenue

Name Address Designation Effective Date

Baxley II, Milton Gainesville, FL CPA October 24, 2003

January 20, 2004 322 2004-3 I.R.B.

Name Address Designation Date of Suspension

Nietupski, John E. Springfield, MA Enrolled Agent Indefinite

2004-3 I.R.B. 323 January 20, 2004

Name Address Designation Date of Suspension

Greene, Marvin Chicago, IL CPA Indefinite

Resignations of Enrolled Agents

Name Address Date of Designation

Pettyplace, Edward F. Sacramento, CA January 30, 2004

January 20, 2004 324 2004-3 I.R.B.

2004-3 I.R.B. i January 20, 2004

2004-1, 2004-1 I.R.B. 254

2004-1, 2004-2 I.R.B. 268

REG-116664-01, 2004-3 I.R.B. 319

2004-1, 2004-1 I.R.B. 1

2004-2, 2004-2 I.R.B. 265

9099, 2004-2 I.R.B. 255

January 20, 2004 ii 2004-3 I.R.B.

2004-3 I.R.B. iii *U.S. G.P.O.: 2004—304–774/60118 January 20, 2004

Вам также может понравиться