LIFO; price indexes; department stores. The November 2003 Bureau of Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in, first-out inventory methods for valuing inventories for tax years ended on, or with reference to, November 30, 2003.

This document contains corrections to proposed regulations (REG-146893-02 and REG-115037-00, 2003-44 I.R.B. 967) under section 482 of the Code that provide guidance regarding the treatment of controlled services transactions and the allocation of income from intangibles.

Roth IRAs; abuses; listed transactions. This notice describes certain transactions that are being entered into by individuals, their Roth IRAs, and their businesses. The Service and the Treasury have determined that these transactions are abusive, that they may result in the disallowance of one or more deductions or the application of an excise tax, and that the applicable transactions must be listed as tax-shelters.

Public advocacy; public policy issues. This ruling concerns certain public advocacy activities conducted by social welfare organizations, unions, and trade associations. The guidance clarifies the tax implications of advocacy that meets the definition of political campaign activity.

Mileage allowance; accountable plans. This ruling clarifies when a mileage allowance for local transportation expenses computed on a basis similar to that used in computing a courier’s compensation may be treated as paid under an accountable plan.

This notice announces the extension of certain 2004 deadlines under revised regulations sections 1.6043-4T and 1.6045-3T for filing Form 8806 and furnishing Form 1099-CAP to clearing organizations. This notice also provides information to filers of Forms 1099-CAP and 1099-B to assist in complying with the reporting requirements set forth in revised sections 1.6043-4T and 1.6045-3T.

This procedure provides an updated list of time-sensitive acts, the performance of which may be postponed under sections 7508 and 7508A of the Code. Section 7508 postpones specified acts for individuals serving in the Armed Forces of the United States or serving in support of such Armed Forces in a combat zone. Section 7508A permits a postponement of specified acts for taxpayers affected by a Presidentially declared disaster or a terroristic or military action. The list of acts in this procedure supplements the list of postponed acts in section 7508(a)(1) and regulations section 301.7508A-1(b). Rev. Proc. 2002-71 superseded.

The Service and the Treasury Department announce that they are requesting comments from the public on proposed new Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities. The form will be required to be filed by U.S. persons that own a foreign disregarded entity directly or, in certain circumstances, indirectly or constructively. The reporting of information on Form 8858 will be required under sections 6011, 6012, 6031, and 6038 of the Code and the related regulations, for annual accounting periods of tax owners of foreign disregarded entities beginning on or after January 1, 2004.

The Service announces the availability of new Form 8806, Information Return for Acquisition of Control or Substantial Change in Capital Structure. This form is used by a reporting corporation to report an acquisition of control or a substantial change in the capital structure of a domestic corporation.

Whether a mileage allowance for local transportation expenses computed on a basis similar to that used in computing a courier’s compensation may be treated as paid under an accountable plan so that it will be excluded from the courier’s gross income and exempt from the withholding and payment of employment taxes.

1. Situation One

Employer, a courier company, hires employee drivers to deliver packages locally. Drivers must own or lease an automobile (including vans, pickups, or panel trucks) for use in connection with the performance of services as couriers. When delivering packages, drivers incur the ordinary and necessary expenses of operating an automobile.

Employer charges customers for deliveries based on location, time of day, expedited service (if requested), mileage between pickup and delivery, size and weight of a package, and other factors. This per package charge is referred to as the “tag rate.” The mileage component of the tag rate is computed as though each package were delivered separately. However, drivers often pick up multiple packages from one location, deliver multiple packages to another location, and travel overlapping routes between and among customers. Consequently, the tag rate may not accurately reflect the transportation expenses incurred with respect to a particular package.

Employer pays drivers a commission equal to X percent of the tag rate as compensation for services. Additionally, employer pays drivers a mileage allowance equal to Y percent of the tag rate to cover the expenses of operating their automobiles. Because the mileage allowance is computed based on a percentage of the tag rate, the mileage rate (cents per mile) paid with respect to any particular package varies depending on the number of miles traveled.

Employer determines the percentage of the tag rate paid as a mileage allowance annually and the percentage remains fixed throughout the calendar year. The percentage paid as a mileage allowance is based on employer’s review of a sample of documents submitted by drivers (including receipts, logbooks, and invoices) reflecting the drivers’ operating and fixed costs. Employer pays the mileage allowance only with respect to miles traveled while delivering packages.

Employer requires that, on a monthly basis, each driver provide information sufficient to substantiate the number of business miles traveled. Employer multiplies the number of miles traveled times the business standard mileage rate (as published by the Commissioner) to calculate the amount of travel expenses deemed substantiated. Employer subtracts the amount deemed substantiated from the mileage allowance paid and reports the excess as wages on the driver’s Form W-2.

2. Situation Two

The facts are the same as in Situation One except employer pays drivers a commission equal to Z percent of the tag rate reduced by a mileage allowance equal to the number of miles traveled multiplied by the business standard mileage rate. Thus, drivers always receive Z percent of the tag rate, but the amount treated as a mileage allowance varies based on the number of business miles traveled and subsequently substantiated by drivers.

Section 61 of the Internal Revenue Code provides that gross income means all income from whatever source derived, including compensation for services, fees, commissions, fringe benefits, and similar items.

Section 62(a)(2)(A) provides that, for purposes of determining adjusted gross income, an employee may deduct certain business expenses paid by the employee in connection with the performance of services as an employee of the employer under a reimbursement or other expense allowance arrangement.

Section 62(c) provides that, for purposes of section 62(a)(2)(A), an arrangement will in no event be treated as a reimbursement or other expense allowance arrangement if (1) the arrangement does not require the employee to substantiate the expenses covered by the arrangement to the person providing the reimbursement, and (2) the arrangement provides the employee the right to retain any amount in excess of the substantiated expenses covered under the arrangement.

Section 1.62-2(c)(1) of the Income Tax Regulations provides that a reimbursement or other expense allowance arrangement satisfies the requirements of section 62(c) if it meets the requirements of business connection, substantiation, and returning amounts in excess of expenses. If an arrangement meets these requirements, all amounts paid under the arrangement are treated as paid under an accountable plan. Amounts treated as paid under an accountable plan are excluded from the employee’s gross income, are not reported as wages or other compensation on the employee’s Form W-2, and are exempt from the withholding and payment of employment taxes. See section 1.62-2(c)(4). Conversely, amounts treated as paid under a nonaccountable plan are included in the employee’s gross income, must be reported as wages or other compensation on the employee’s Form W-2, and are subject to withholding and payment of employment taxes. See section 1.62-2(c)( 5).

Section 1.62-2(d)(1) provides that an arrangement meets the business connection requirements if it provides advances, allowances, or reimbursements only for business expenses that are allowable as deductions and that are paid or incurred by the employee in connection with the performance of services as an employee of the employer. If, however, a payor arranges to pay an amount to an employee regardless of whether the employee incurs (or is reasonably expected to incur) deductible employee business expenses, the arrangement does not satisfy the business connection requirements and all amounts paid under the arrangement are treated as paid under a nonaccountable plan. See section 1.62-2(d)(3)(i); see also section 1.62-2(j), example (1) which describes the payment of a fixed amount as either compensation or travel allowance and concludes that the arrangement does not satisfy the business connection requirements.

Section 1.62-2(e)(2) provides that an arrangement reimbursing use of a passenger automobile meets the substantiation requirements if information sufficient to satisfy the substantiation requirements of section 274(d) is submitted to the payor. Section 274(d) provides that no deduction shall be allowed under section 162 with respect to any listed property (including passenger automobiles and any other property used as a means of transportation) unless the taxpayer complies with certain substantiation requirements. Section 1.274-5(g) grants the Commissioner the authority to prescribe rules relating to mileage allowances for ordinary and necessary expenses of using a vehicle for local transportation. Pursuant to this grant of authority the Commissioner may prescribe rules under which such allowances, if in accordance with reasonable business practice, will be regarded as (1) equivalent to substantiation of the amount of such transportation expenses, and (2) satisfying the requirements of an adequate acc ounting to the employer of the amount of such expenses. The Commissioner annually publishes a revenue procedure establishing a business standard mileage rate taxpayers may use to substantiate the amount of the deductible costs of operating an automobile for business purposes. See, for example, Rev. Proc. 2003-76, 2003-43 I.R.B. 924 (or any successor.) A taxpayer must nonetheless actually substantiate the elements of time, use, and business purpose relating to the expenses.

Section 1.62-2(f) provides that an arrangement meets the return requirements if it requires the employee to return to the payor within a reasonable period of time any amount paid under the arrangement in excess of substantiated expenses. However, section 1.62-2(f)(2) provides that a reimbursement or other expense allowance arrangement that provides mileage allowances for ordinary and necessary expenses of local travel will be treated as satisfying the return of excess requirements even though the arrangement does not require the employee to return the portion of such an allowance that relates to the miles of travel substantiated and that exceeds the amount of the employee’s expenses deemed substantiated. This exception applies only if the allowance is paid at a rate for each mile of travel that is reasonably calculated not to exceed the amount of the employee’s expenses or anticipated expenses and the employee is required to return to the payor within a reasonable period of time any portio n of such allowance which relates to miles of travel not substantiated.

In Shotgun Delivery, Inc. v. United States, 269 F.3d 969 (9th Cir. 2001), a courier company paid its drivers a commission equal to 40 percent of the tag rate. The commission was allocated between compensation paid at the minimum wage and a variable mileage reimbursement. The district court found that “because Shotgun’s tag rates were not based solely on distance traveled, and since Shotgun drivers could double up on deliveries, Shotgun’s reimbursement arrangement, was in fact, reimbursing its drivers in a manner not correlated to expenses Shotgun’s employees incurred or were reasonably likely to incur.” Shotgun Delivery, Inc. v. United States, 85 F.Supp. 2d 962, 965 (N.D. Cal. 2000.) Consequently, the district court concluded that Shotgun’s reimbursement arrangement failed to meet the business connection requirements and held that the mileage reimbursements were paid under a nonaccountable plan. In affirming the district court’s holding, the Ninth Circuit observed that such arrangements blur “the fundamental distinction between taxable compensation and tax-exempt reimbursement which underpins this entire aspect of the tax system” and concluded that “requiring a demonstrable connection to actual business expenses prevents companies from improperly sheltering otherwise taxable compensation under the guise of reimbursement.” Shotgun Delivery, 269 F.3d at 974.

1. Situation One

In Situation One, the mileage allowance meets the business connection requirements of section 1.62-2(d). The mileage allowance is paid with respect to deductible employee business expenses reasonably expected to be incurred by the drivers. Employer reviews a sample of receipts, logbooks, and invoices annually to estimate the drivers’ operating and fixed costs and, correspondingly, to set the percentage of the tag rate paid as a mileage allowance. Although the mileage allowance is computed on a basis similar to that used in computing the driver’s compensation and, consequently, is paid at a variable mileage rate, the percentage of the tag rate paid as a mileage allowance remains fixed throughout the calendar year. Unlike the reimbursements at issue in Shotgun Delivery, Inc. v. United States, 269 F.3d 969 (9^th Cir. 2001), the mileage allowance in Situation One is paid with respect to expenses reasonably expected to be incurred and does not va ry inversely with the commission based on the number of hours worked.

Similarly, in Situation One the mileage allowance meets the substantiation requirements of section 1.62-2(e). Specifically, the drivers are required to substantiate monthly the time, use, and business purpose, i.e., the number of business miles traveled, relating to their use of an automobile while delivering packages. In lieu of substantiating the actual amount of the driver’s deductible transportation expenses, an amount is deemed substantiated equal to the number of miles traveled multiplied by the business standard mileage rate. An allowance paid with respect to ordinary and necessary transportation expenses that is reasonably calculated not to exceed the amount of anticipated expenses and is paid at a flat rate or stated schedule constitutes a mileage allowance pursuant to section 1.274-5(g) and the rules promulgated thereunder. See Rev. Proc. 2003-76. While the mileage allowance in Situation One is paid at a variable mileage rate, it is nonethel ess computed based on a fixed percentage of the tag rate and is considered paid at a flat rate or stated schedule. Thus, drivers are deemed to have substantiated expenses at the business standard mileage rate with respect to each mile of travel actually substantiated.

Finally, in Situation One the mileage allowance meets the return of excess requirements of section 1.62-2(f). Employer intends to pay the mileage allowance only with respect to miles of travel substantiated by the drivers. Consequently, drivers are not required to return the portion of the mileage allowance exceeding the amount of expenses deemed substantiated. See section 1.62-2(f)(2).

Having met the business connection, substantiation, and return of excess requirements of section 1.62-2(c)(1), the portion of the mileage allowance that is not in excess of the expenses deemed substantiated may be treated as paid under an accountable plan in accordance with section 62(c). Such amounts are excluded from the drivers’ gross income and are exempt from the withholding and payment of employment taxes. The portion of the mileage allowance that is in excess of the expenses deemed substantiated is treated as paid under a nonaccountable plan. These amounts must be included in the drivers’ gross income and are subject to the withholding and payment of employment taxes.

2. Situation Two

In Situation Two, the reimbursement arrangement does not meet the business connection requirements of section 1.62-2(d). A variable allocation between commission and mileage allowance ensures that each driver receives Z percent of the tag rate regardless of the amount of deductible employee business expenses incurred by the driver. A bona fide reimbursement arrangement must preclude the recharacterization as a mileage allowance of amounts otherwise payable as a commission. See section 1.62-2(j), example (1); see also H.R. Conf. Rep. No. 998, 100^th Cong., 2d Sess. 202-206 (1988). Consequently, the reimbursement arrangement in Situation Two is treated as a nonaccountable plan, and all amounts paid under the plan must be included in the drivers’ gross income and are subject to the withholding and payment of employment taxes.

Under the circumstances set forth in Situation One, a mileage allowance for local transportation expenses computed on a basis similar to that used in computing a courier’s compensation may be treated as paid under an accountable plan. The portion of the mileage allowance that is not in excess of the expenses deemed substantiated is excluded from the courier’s gross income and is exempt from the withholding and payment of employment taxes. However, the portion of the mileage allowance that is in excess of the expenses deemed substantiated is treated as paid under a nonaccountable plan, must be included in the courier’s gross income, and is subject to the withholding and payment of employment taxes. Under the circumstances set forth in Situation Two, a variable allocation between commission and mileage allowance does not meet the business connection requirements. Consequently, the reimbursement arrangement is treated as a nonaccountable plan, and all amounts paid under the plan must be included in the drivers’ gross income and are subject to the withholding and payment of employment taxes.

The principal author of this revenue ruling is Neil D. Shepherd of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this revenue ruling, contact Neil D. Shepherd at (202) 622-6040 (not a toll-free call).

The following Department Store Inventory Price Indexes for November 2003 were issued by the Bureau of Labor Statistics. The indexes are accepted by the Internal Revenue Service, under § 1.472-1(k) of the Income Tax Regulations and Rev. Proc. 86-46, 1986-2 C.B. 739, for appropriate application to inventories of department stores employing the retail inventory and last-in, first-out inventory methods for tax years ended on, or with reference to, November 30, 2003.

The Department Store Inventory Price Indexes are prepared on a national basis and include (a) 23 major groups of departments, (b) three special combinations of the major groups — soft goods, durable goods, and miscellaneous goods, and (c) a store total, which covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco, and contract departments.

The principal author of this revenue ruling is Michael Burkom of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Mr. Burkom at (202) 622-7924 (not a toll-free call).

Organizations that are exempt from federal income tax under § 501(a) as organizations described in § 501(c)(4), § 501(c)(5), or § 501(c)(6) may, consistent with their exempt purpose, publicly advocate positions on public policy issues. This advocacy may include lobbying for legislation consistent with these positions. Because public policy advocacy may involve discussion of the positions of public officials who are also candidates for public office, a public policy advocacy communication may constitute an exempt function within the meaning of § 527(e)(2). If so, the organization would be subject to tax under § 527(f).

In each of the six situations described below, has the organization exempt from federal income tax under § 501(a) as an organization described in § 501(c)(4), § 501(c)(5), or § 501(c)(6) that engages in public policy advocacy expended funds for an exempt function as described in § 527(e)(2)?

Section 501(c)(4) provides exemption from taxation for civic leagues or organizations not organized for profit, but operated exclusively for the promotion of social welfare.

Section 1.501(c)(4)-1 of the Income Tax Regulations states an organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community.

Section 501(c)(5) provides exemption from taxation for labor, agricultural, or horticultural organizations.

Section 1.501(c)(5)-1 requires that labor, agricultural, or horticultural organizations have as their objects the betterment of the conditions of those engaged in such pursuits, the improvement of the grade of their products, and the development of a higher degree of efficiency in their respective occupations.

Section 501(c)(6) provides exemption from taxation for business leagues, not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.

Section 1.501(c)(6)-1 provides that a business league is an association of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit. A business league’s activities should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons.

Section 527 generally provides that political organizations that collect and expend monies for exempt function purposes as described in § 527(e)(2) are exempt from Federal income tax except on their investment income.

Section 527(e)(1) defines a political organization as a party, committee, association, fund or other organization (whether or not incorporated), organized and operated primarily for the purpose of accepting contributions or making expenditures, or both, for an exempt function.

Section 527(e)(2) provides that the term “exempt function” for purposes of § 527 means the function of influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office or office in a political organization, or the election of Presidential or Vice-Presidential electors, whether or not such individual or electors are selected, nominated, elected, or appointed. By its terms, § 527(e)(2) includes all attempts to influence the selection, nomination, election, or appointment of the described officials.

Section 527(f)(1) provides that an organization described in § 501(c) and exempt from tax under § 501(a) is subject to tax on any amount expended for an exempt function described in § 527(e)(2) at the highest tax rate specified in § 11(b). The tax is imposed on the lesser of the net investment income of the organization for the taxable year or the amount expended on an exempt function during the taxable year. A § 501(c) organization is taxed under § 527(f)(1) only if the expenditure is from its general treasury rather than from a separate segregated fund described in § 527(f)(3).

Section 527(f)(3) provides that if an organization described in § 501(c) and exempt from tax under § 501(a) sets up a separate segregated fund (which segregates monies for § 527(e)(2) exempt function purposes) that fund will be treated as a separate political organization described in § 527 and, therefore, be subject to tax as a political organization under § 527.

Section 527(i) provides that, in order to be tax-exempt, a political organization is required to give notice that it is a political organization described in § 527, unless excepted. An organization described in § 501(c) that does not set up a separate segregated fund, but makes exempt function expenditures subject to tax under § 527(f) is not subject to this requirement. § 527(i)(5)(A).

Section 527(j) provides that, unless excepted, a tax-exempt political organization that has given notice under § 527(i) and does not timely make periodic reports of contributions and expenditures, or that fails to include the information required, must pay an amount calculated by multiplying the amount of contributions and expenditures that are not disclosed by the highest corporate tax rate. An organization described in § 501(c) that does not set up a separate segregated fund, but makes exempt function expenditures subject to tax under § 527(f), is not subject to the reporting requirements under § 527(j).

Section 1.527-2(c)(1) provides that the term “exempt function” includes all activities that are directly related to and support the process of influencing or attempting to influence the selection, nomination, election, or appointment of any individual to public office or office in a political organization. Whether an expenditure is for an exempt function depends on all the facts and circumstances.

Section 1.527-6(f) provides that an organization described in § 501(c) that is exempt under § 501(a) may, if it is consistent with its exempt status, establish and maintain a separate segregated fund to receive contributions and make expenditures in a political campaign.

Rev. Rul. 2003-49, 2003-20 I.R.B. 903 (May 19, 2003), discusses the reporting and disclosure requirements for political organizations in question and answer format. In Q&A-6, the ruling holds that while a § 501(c) organization that makes an expenditure for an exempt function under § 527(e)(2) is not required to file the notice required under § 527(i), if the § 501(c) organization establishes a separate segregated fund under § 527(f)(3), that fund is required to file the notice in order to be tax-exempt unless it meets one of the other exceptions to filing.

Certain broadcast, cable, or satellite communications that meet the definition of “electioneering communications” are regulated by the Bipartisan Campaign Reform Act of 2002 (BCRA), 116 Stat. 81. An exempt organization that violates the regulatory requirements of BCRA may well jeopardize its exemption or be subject to other tax consequences.

An organization exempt from federal income tax under § 501(a) as an organization described in § 501(c) that, consistent with its tax-exempt status, wishes to engage in an exempt function within the meaning of § 527(e)(2) may do so with its own funds or by setting up a separate segregated fund under § 527(f)(3). If the organization chooses to establish a separate segregated fund, that fund, unless excepted, must give notice under § 527(i) in order to be tax-exempt. A separate segregated fund that has given notice under § 527(i) is then subject to the reporting requirements under § 527(j). See Rev. Rul. 2003-49. If the organization chooses to use its own funds, the organization is not subject to the notice requirements under § 527(i) and the reporting requirements under § 527(j), but is subject to tax under § 527(f)(1) on the lesser of its investment income or the amount of the exempt f unction expenditure.

All the facts and circumstances must be considered to determine whether an expenditure for an advocacy communication relating to a public policy issue is for an exempt function under § 527(e)(2). When an advocacy communication explicitly advocates the election or defeat of an individual to public office, the expenditure clearly is for an exempt function under § 527(e)(2). However, when an advocacy communication relating to a public policy issue does not explicitly advocate the election or defeat of a candidate, all the facts and circumstances need to be considered to determine whether the expenditure is for an exempt function under § 527(e)(2).

In facts and circumstances such as those described in the six situations, factors that tend to show that an advocacy communication on a public policy issue is for an exempt function under § 527(e)(2) include, but are not limited to, the following:

a) The communication identifies a candidate for public office;

b) The timing of the communication coincides with an electoral campaign;

c) The communication targets voters in a particular election;

d) The communication identifies that candidate’s position on the public policy issue that is the subject of the communication;

e) The position of the candidate on the public policy issue has been raised as distinguishing the candidate from others in the campaign, either in the communication itself or in other public communications; and

f) The communication is not part of an ongoing series of substantially similar advocacy communications by the organization on the same issue.

In facts and circumstances such as those described in the six situations, factors that tend to show that an advocacy communication on a public policy issue is not for an exempt function under § 527(e)(2) include, but are not limited to, the following:

a) The absence of any one or more of the factors listed in a) through f) above;

b) The communication identifies specific legislation, or a specific event outside the control of the organization, that the organization hopes to influence;

c) The timing of the communication coincides with a specific event outside the control of the organization that the organization hopes to influence, such as a legislative vote or other major legislative action (for example, a hearing before a legislative committee on the issue that is the subject of the communication);

d) The communication identifies the candidate solely as a government official who is in a position to act on the public policy issue in connection with the specific event (such as a legislator who is eligible to vote on the legislation); and

e) The communication identifies the candidate solely in the list of key or principal sponsors of the legislation that is the subject of the communication.

In all of the situations, the advocacy communication identifies a candidate in an election, appears shortly before that election, and targets the voters in that election. Even though these factors are present, the remaining facts and circumstances must be analyzed in each situation to determine whether the advocacy communication is for an exempt function under § 527(e)(2).

Each of the situations assumes that:

1. All payments for the described activity are from the general treasury of the organization rather than from a separate segregated fund under § 527(f)(3);

2. The organization would continue to be exempt under § 501(a), even if the described activity is not a § 501(c) exempt activity, because the organization’s primary activities are described in the appropriate subparagraph of § 501(c); and

3. All advocacy communications described also include a solicitation of contributions to the organization.

Situation 1. N, a labor organization recognized as tax exempt under § 501(c)(5), advocates for the betterment of conditions of law enforcement personnel. Senator A and Senator B represent State U in the United States Senate. In year 200x, N prepares and finances full-page newspaper advertisements supporting increased spending on law enforcement, which would require a legislative appropriation. These advertisements are published in several large circulation newspapers in State U on a regular basis during year 200x. One of these full-page advertisements is published shortly before an election in which Senator A (but not Senator B) is a candidate for re-election. The advertisement published shortly before the election stresses the importance of increased federal funding of local law enforcement and refers to numerous statistics indicating the high crime rate in State U. The advertisement does not mention Senator A’s or Senator B’s position on law enforcement issues. The advertisement ends with the statement “Call or write Senator A and Senator B to ask them to support increased federal funding for local law enforcement.” Law enforcement has not been raised as an issue distinguishing Senator A from any opponent. At the time this advertisement is published, no legislative vote or other major legislative activity is scheduled in the United States Senate on increased federal funding for local law enforcement.

Under the facts and circumstances in Situation 1, the advertisement is not for an exempt function under § 527(e)(2). Although N’s advertisement identifies Senator A, appears shortly before an election in which Senator A is a candidate, and targets voters in that election, it is part of an ongoing series of substantially similar advocacy communications by N on the same issue during year 200x. The advertisement identifies both Senator A and Senator B, who is not a candidate for re-election, as the representatives who would vote on this issue. Furthermore, N’s advertisement does not identify Senator A’s position on the issue, and law enforcement has not been raised as an issue distinguishing Senator A from any opponent. Therefore, there is nothing to indicate that Senator A’s candidacy should be supported or opposed based on this issue. Based on these facts and circumstances, the amount expended by N on the advertisement is not an exempt function expenditure under § 527(e)(2) and, therefore, is not subject to tax under § 527(f)(1).

Situation 2. O, a trade association recognized as tax exempt under § 501(c)(6), advocates for increased international trade. Senator C represents State V in the United States Senate. O prepares and finances a full-page newspaper advertisement that is published in several large circulation newspapers in State V shortly before an election in which Senator C is a candidate for nomination in a party primary. The advertisement states that increased international trade is important to a major industry in State V. The advertisement states that S. 24, a pending bill in the United States Senate, would provide manufacturing subsidies to certain industries to encourage export of their products. The advertisement also states that several manufacturers in State V would benefit from the subsidies, but Senator C has opposed similar measures supporting increased international trade in the past. The advertisement ends with the statement “Call or write Senator C to tell him to vote for S. 24.” International trade concerns have not been raised as an issue distinguishing Senator C from any opponent. S. 24 is scheduled for a vote in the United States Senate before the election, soon after the date that the advertisement is published in the newspapers.

Under the facts and circumstances in Situation 2, the advertisement is not for an exempt function under § 527(e)(2). O’s advertisement identifies Senator C, appears shortly before an election in which Senator C is a candidate, and targets voters in that election. Although international trade issues have not been raised as an issue distinguishing Senator C from any opponent, the advertisement identifies Senator C’s position on the issue as contrary to O’s position. However, the advertisement specifically identifies the legislation O is supporting and appears immediately before the United States Senate is scheduled to vote on that particular legislation. The candidate identified, Senator C, is a government official who is in a position to take action on the public policy issue in connection w ith the specific event. Based on these facts and circumstances, the amount expended by O on the advertisement is not an exempt function expenditure under § 527(e)(2) and, therefore, is not subject to tax under § 527(f)(1).

Situation 3. P, an entity recognized as tax exempt under § 501(c)(4), advocates for better health care. Senator D represents State W in the United States Senate. P prepares and finances a full-page newspaper advertisement that is published repeatedly in several large circulation newspapers in State W beginning shortly before an election in which Senator D is a candidate for re-election. The advertisement is not part of an ongoing series of substantially similar advocacy communications by P on the same issue. The advertisement states that a public hospital is needed in a major city in State W but that the public hospital cannot be built without federal assistance. The advertisement further states that Senator D has voted in the past year for two bills that would have provided the federal funding necessary for the hospital. The advertisement then ends with the statement “Let Senator D know you agree about the need for federal funding for hospitals.” Federal funding for hospitals has not been raised as an issue distinguishing Senator D from any opponent. At the time the advertisement is published, a bill providing federal funding for hospitals has been introduced in the United States Senate, but no legislative vote or other major legislative activity on that bill is scheduled in the Senate.

Under the facts and circumstances in Situation 3, the advertisement is for an exempt function under § 527(e)(2). P’s advertisement identifies Senator D, appears shortly before an election in which Senator D is a candidate, and targets voters in that election. Although federal funding of hospitals has not been raised as an issue distinguishing Senator D from any opponent, the advertisement identifies Senator D’s position on the hospital funding issue as agreeing with P’s position, and is not part of an ongoing series of substantially similar advocacy communications by P on the same issue. Moreover, the advertisement does not identify any specific legislation and is not timed to coincide with a legislative vote or other major legislative action on the hospital funding issue. Based on these facts and circumstances , the amount expended by P on the advertisement is an exempt function expenditure under § 527(e)(2) and, therefore, is subject to tax under § 527(f)(1).

Situation 4. R, an entity recognized as tax exempt under § 501(c)(4), advocates for improved public education. Governor E is the governor of State X. R prepares and finances a radio advertisement urging an increase in state funding for public education in State X, which requires a legislative appropriation. The radio advertisement is first broadcast on several radio stations in State X beginning shortly before an election in which Governor E is a candidate for re-election. The advertisement is not part of an ongoing series of substantially similar advocacy communications by R on the same issue. The advertisement cites numerous statistics indicating that public education in State X is under-funded. While the advertisement does not say anything about Governor E ’s position on funding for public education, it ends with “Tell Governor E what you think about our under-funded schools.” In public appearances and campaign literature, Governor E’s opponent has made funding of public education an issue in the campaign by focusing on Governor E’s veto of an income tax increase the previous year to increase funding of public education. At the time the advertisement is broadcast, no legislative vote or other major legislative activity is scheduled in the State X legislature on state funding of public education.

Under the facts and circumstances in Situation 4, the advertisement is for an exempt function under § 527(e)(2). R’s advertisement identifies Governor E, appears shortly before an election in which Governor E is a candidate, and targets voters in that election. Although the advertisement does not explicitly identify Governor E’s position on the funding of public schools issue, that issue has been raised as an issue in the campaign by Governor E’s opponent. The advertisement does not identify any specific legislation, is not part of an ongoing series of substantially similar advocacy communications by R on the same issue, and is not timed to coincide with a legislative vote or other major legislative action on that issue. Based on these facts and circumstances, the amount expended by R on the advertisement is an exempt function expenditure under § 527(e)(2) and, therefore, is subject to tax under § 527(f)(1).

Situation 5. S, an entity recognized as tax exempt under § 501(c)(4), advocates to abolish the death penalty in State Y. Governor F is the governor of State Y. S regularly prepares and finances television advertisements opposing the death penalty. These advertisements appear on several television stations in State Y shortly before each scheduled execution in State Y. One such advertisement opposing the death penalty appears on State Y television stations shortly before the scheduled execution of G and shortly before an election in which Governor F is a candidate for re-election. The advertisement broadcast shortly before the election provides statistics regarding developed countries that have abolished the death penalty and refers to studies indicating inequities re lated to the types of persons executed in the United States. Like the advertisements appearing shortly before other scheduled executions in State Y, the advertisement notes that Governor F has supported the death penalty in the past and ends with the statement “Call or write Governor F to demand that he stop the upcoming execution of G.”

Under the facts and circumstances in Situation 5, the advertisement is not for an exempt function under § 527(e)(2). S’s advertisement identifies Governor F, appears shortly before an election in which Governor F is a candidate, targets voters in that election, and identifies Governor F’s position as contrary to S’s position. However, the advertisement is part of an ongoing series of substantially similar advocacy communications by S on the same issue and the advertisement identifies an event outside the control of the organization (the scheduled execution) that the organization hopes to influence. Further, the timing of the advertisement coincides with this specific event that the organization hopes to influence. The candidate identified is a government official who is in a position to take action on the public policy issue in con nection with the specific event. Based on these facts and circumstances, the amount expended by S on the advertisements is not an exempt function expenditure under § 527(e)(2) and, therefore, is not subject to tax under § 527(f)(1).

Situation 6. T, an entity recognized as tax exempt under § 501(c)(4), advocates to abolish the death penalty in State Z. Governor H is the governor of State Z. Beginning shortly before an election in which Governor H is a candidate for re-election, T prepares and finances a television advertisement broadcast on several television stations in State Z. The advertisement is not part of an ongoing series of substantially similar advocacy communications by T on the same issue. The advertisement provides statistics regarding developed countries that have abolished the death penalty, and refers to studies indicating inequities related to the types of persons executed in the United States. The advertisement calls for the abolishment of the death penalty. The advertisement notes that Governor H has supported the death penalty in the past. The advertisement identifies several individuals previously executed in State Z, stating that Governor H could have saved their lives by stopping their executions. No executions are scheduled in State Z in the near future. The advertisement concludes with the statement “Call or write Governor H to demand a moratorium on the death penalty in State Z.”

Under the facts and circumstances in Situation 6, the advertisement is for an exempt function under § 527(e)(2). T’s advertisement identifies Governor H, appears shortly before an election in which Governor H is a candidate, targets the voters in that election, and identifies Governor H’s position as contrary to T’s position. The advertisement is not part of an ongoing series of substantially similar advocacy communications by T on the same issue. In addition, the advertisement does not identify and is not timed to coincide with a specific event outside the control of the organization that it hopes to influence. Based on these facts and circumstances, the amount expended by T on the advertisement is an exempt function expenditure under § 527(e)(2) and, therefore, is subject to tax under § 52 7(f)(1).

In Situations 1, 2, and 5, the amounts expended by N, O, and S are not exempt function expenditures under § 527(e)(2) and, therefore, are not subject to tax under § 527(f)(1). In Situations 3, 4, and 6, the amounts expended by P, R and T are exempt function expenditures under § 527(e)(2) and, therefore, are subject to tax under § 527(f)(1).

The principal author of this revenue ruling is Judith E. Kindell of Exempt Organizations, Tax Exempt and Government Entities Division. For further information regarding this revenue ruling, contact Judith E. Kindell at (202) 283-8964 (not a toll-free call).

Section 408A was added to the Internal Revenue Code by section 302 of the Taxpayer Relief Act of 1997, Pub. L. 105-34, 105^th Cong., 1^st Sess. 40 (1997). This section created Roth IRAs as a new type of nondeductible individual retirement arrangement (IRA). The maximum annual contribution to Roth IRAs is the same maximum amount that would be allowable as a deduction under § 219 with respect to the individual for the taxable year over the aggregate amount of contributions for that taxable year to all other IRAs. Neither the contributions to a Roth IRA nor the earnings on those contributions are subject to tax on distribution, if distributed as a qualified distribution described in § 408A(d)(2).

A contribution to a Roth IRA above the statutory limits generates a 6-percent excise tax described in § 4973. The excise tax is imposed each year until the excess contribution is eliminated.

In general, these transactions involve the following parties: (1) an individual (the Taxpayer) who owns a pre-existing business such as a corporation or a sole proprietorship (the Business), (2) a Roth IRA within the meaning of § 408A that is maintained for the Taxpayer, and (3) a corporation (the Roth IRA Corporation), substantially all the shares of which are owned or acquired by the Roth IRA. The Business and the Roth IRA Corporation enter into transactions as described below. The acquisition of shares, the transactions or both are not fairly valued and thus have the effect of shifting value into the Roth IRA.

Examples include transactions in which the Roth IRA Corporation acquires property, such as accounts receivable, from the Business for less than fair market value, contributions of property, including intangible property, by a person other than the Roth IRA, without a commensurate receipt of stock ownership, or any other arrangement between the Roth IRA Corporation and the Taxpayer, a related party described in § 267(b) or 707(b), or the Business that has the effect of transferring value to the Roth IRA Corporation comparable to a contribution to the Roth IRA.

The transactions described in this notice have been designed to avoid the statutory limits on contributions to a Roth IRA contained in § 408A. Because the Taxpayer controls the Business and is the beneficial owner of substantially all of the Roth IRA Corporation, the Taxpayer is in the position to shift value from the Business to the Roth IRA Corporation. The Service intends to challenge the purported tax benefits claimed for these arrangements on a number of grounds.

In challenging the purported tax benefits, the Service will, in appropriate cases, assert that the substance of the transaction is that the amount of the value shifted from the Business to the Roth IRA Corporation is a payment to the Taxpayer, followed by a contribution by the Taxpayer to the Roth IRA and a contribution by the Roth IRA to the Roth IRA Corporation. In such cases, the Service will deny or reduce the deduction to the Business; may require the Business, if the Business is a corporation, to recognize gain on the transfer under § 311(b); and may require inclusion of the payment in the income of the Taxpayer (for example, as a taxable dividend if the Business is a C corporation). See Sammons v. United States, 433 F.2d 728 (5th Cir. 1970); Worcester v. Commissioner, 370 F.2d 713 (1st Cir. 1966).

Depending on the facts of the specific case, the Service may apply § 482 to allocate income from the Roth IRA Corporation to the Taxpayer, Business, or other entities under the control of the Taxpayer. Section 482 provides the Secretary with authority to allocate gross income, deductions, credits or allowances among persons owned or controlled directly or indirectly by the same interests, if such allocation is necessary to prevent evasion of taxes or clearly to reflect income. The § 482 regulations provide that the standard to be applied is that of a person dealing at arm’s length with an uncontrolled person. See generally § 1.482-1(b) of the Income Tax Regulations. To the extent that the consideration paid or received in transactions between the Business and the Roth IRA Corporation is not in accordance with the arm’s length standard, the Service may apply § 482 as necessary to prevent evasion of taxes or clearly to reflect income. In the event o f a § 482 allocation between the Roth IRA Corporation and the Business or other parties, correlative allocations and other conforming adjustments would be made pursuant to § 1.482-1(g). Also see, Rev. Rul. 78-83, 1978-1 C.B. 79.

In addition to any other tax consequences that may be present, the amount treated as a contribution as described above is subject to the excise tax described in § 4973 to the extent that it is an excess contribution within the meaning of § 4973(f). This is an annual tax that is imposed until the excess amount is eliminated.

Moreover, under § 408(e)(2)(A), the Service may take the position in appropriate cases that the transaction gives rise to one or more prohibited transactions between a Roth IRA and a disqualified person described in § 4975(e)(2). For example, the Department of Labor^[1] has advised the Service that, to the extent that the Roth IRA Corporation constitutes a plan asset under the Department of Labor’s plan asset regulation (29 C.F.R. § 2510.3-101), the provision of services by the Roth IRA Corporation to the Taxpayer’s Business (which is a disqualified person with respect to the Roth IRA under § 4975(e)(2)) would constitute a prohibited transaction under § 4975(c)(1)(C).^[2] Further, the Department of Labor has advised the Service that, if a transaction between a disqualified person and the Roth IRA would be a prohibited transaction, then a transaction between that disqualified person and the Roth IRA Corporation would be a prohibited transaction if the Roth IRA may, by itself, require the Roth IRA Corporation to enter into the transaction.^[3]

The following transactions are identified as “listed transactions” for purposes of §§ 1.6011-4(b)(2), 301.6111-2(b)(2) and 301.6112-1(b)(2) effective December 31, 2003, the date this document is released to the public: arrangements in which an individual, related persons described in § 267(b) or 707(b), or a business controlled by such individual or related persons, engage in one or more transactions with a corporation, including contributions of property to such corporation, substantially all the shares of which are owned by one or more Roth IRAs maintained for the benefit of the individual, related persons described in § 267(b)(1), or both. The transactions are listed transactions with respect to the individuals for whom the Roth IRAs are maintained, the business (if not a sole proprietorship) that is a party to the transaction, and the corporation substantially all the shares of which are owned by the Roth IRAs. Independent of their classification as “listed transactions,” these transactions may already be subject to the disclosure requirements of § 6011 (§ 1.6011-4), the tax shelter registration requirements of § 6111 (§§ 301.6111-1T and 301.6111-2), or the list maintenance requirements of § 6112 (§ 301.6112-1).

Substantially similar transactions include transactions that attempt to use a single structure with the intent of achieving the same or substantially same tax effect for multiple taxpayers. For example, if the Roth IRA Corporation is owned by multiple taxpayers’ Roth IRAs, a substantially similar transaction occurs whenever that Roth IRA Corporation enters into a transaction with a business of any of the taxpayers if distributions from the Roth IRA Corporation are made to that taxpayer’s Roth IRA based on the purported business transactions done with that taxpayer’s business or otherwise based on the value shifted from that taxpayer’s business to the Roth IRA Corporation.

Persons required to register these tax shelters under § 6111 who have failed to do so may be subject to the penalty under § 6707(a). Persons required to maintain lists of investors under § 6112 who have fail to do so (or who fail to provide such lists when requested by the Service) may be subject to the penalty under § 6708(a). In addition, the Service may impose penalties on participants in this transaction or substantially similar transactions, including the accuracy-related penalty under § 6662, and as applicable, persons who participate in the reporting of this transaction or substantially similar transactions, including the return preparer penalty under § 6694, the promoter penalty under § 6700, and the aiding and abetting penalty under § 6701.

The Service and the Treasury recognize that some taxpayers may have filed tax returns taking the position that they were entitled to the purported tax benefits of the type of transaction described in this notice. These taxpayers should consult with a tax advisor to ensure that their transactions are disclosed properly and to take appropriate corrective action.

The principal author of this notice is Michael Rubin of the Employee Plans, Tax Exempt and Government Entities Division. However, other personnel from the Service and Treasury participated in its development. Mr. Rubin may be reached at (202) 283-9888 (not a toll-free call).

This notice announces the extension of certain 2004 deadlines under revised §§ 1.6043-4T and 1.6045-3T of the Income Tax Regulations for filing Form 8806 and furnishing Form 1099-CAP to clearing organizations. This notice also provides information to filers of Forms 1099-CAP and 1099-B to assist in complying with the reporting requirements set forth in revised §§ 1.6043-4T and 1.6045-3T. The 2003 Forms 1099-CAP and 1099-B, and their instructions, do not reflect the provisions of the revised temporary regulations.

On December 30, 2003, the Internal Revenue Service (Service) issued temporary regulations under sections 6043(c) and 6045 of the Internal Revenue Code (T.D. 9101, 2004-5 I.R.B. [68 FR 75119]). These regulations, which revise temporary regulations issued on November 18, 2002 (T.D. 9022, 2002-2 C.B. 909 [67 FR 69468]), require information reporting if a domestic corporation undergoes an acquisition of control or a substantial change in capital structure after December 31, 2002, if the reporting corporation or any shareholder is required to recognize gain (if any) as a result of the application of section 367(a) of the Internal Revenue Code (Code). Pursuant to the revised regulations, a corporation must file Form 8806, “Information Return for Acquisition of Control or Substantial Change in Capital Structure,” reporting and describing the acquisition of control or substantial change in capital structure. In addition, the revised regulations require the corporation to fil e Form 1099-CAP, “Changes in Corporate Control and Capital Structure,” with the Service with respect to each of its shareholders that is not an exempt recipient, and to furnish Form 1099-CAP to each such shareholder. The regulations also require a broker that holds stock on behalf of a customer in the corporation that the broker knows or has reason to know has engaged in a transaction described in these regulations to file Form 1099-B, “Proceeds From Broker and Barter Exchange Transactions,” with the Service with respect to its customer, and to furnish a copy of the Form 1099-B to the customer.

Section 6081 of the Code provides that the Secretary may grant a reasonable extension of time for filing any return, declaration, statement, or other document required by the Code or by regulations thereunder. Under the authority of section 6081, the Service is extending the deadlines set forth in revised §§ 1.6043-4T and 1.6045-3T for filing Forms 8806 with the Service and furnishing Forms 1099-CAP to clearing organizations for transactions occurring in calendar year 2003. Forms 8806 otherwise required to be filed with the Service by January 5, 2004, must be filed by January 12, 2004. Forms 1099-CAP otherwise required to be furnished to clearing organizations by January 5, 2004, must be furnished by January 12, 2004. This extension does not apply to any other deadline.

Under revised § 1.6043-4T(b), a reporting corporation must file Form 1099-CAP with respect to its shareholders who are not exempt recipients. The list of exempt recipients is set forth in § 1.6043-4T(b)(5), and includes brokers. Clearing organizations are not exempt recipients under the revised regulations. Therefore, corporations must file Form 1099-CAP with respect to shares held by a clearing organization, and furnish a copy of the form to the clearing organization. Pursuant to § 1.6043-4T(b)(4), Form 1099-CAP must be furnished to clearing organizations by January 5^th of the year following the calendar year in which the transaction took place. Pursuant to Section 3 of this notice, Forms 1099-CAP otherwise due on January 5, 2004, must be furnished to clearing organizations no later than January 12, 2004. Taxpayers, however, are encouraged to comply as soon as possible prior to January 12, 2004.

The Depository Trust Company (DTC) is a clearing organization which holds a large percentage of publicly issued securities, and is likely to receive Forms 1099-CAP pursuant to the provisions of § 1.6043-4T(b). In anticipation of receiving such forms, DTC has established a specific mailing address. DTC requests that Forms 1099-CAP be delivered via express mail or other overnight service to:

The envelope should be marked with the words:

DTC will also accept Form 1099-CAP electronically. Forms should be emailed to:

1099CAP@dtcc.com in Adobe Acrobat PDF file format

Furnishing Forms 1099 to payees electronically is permitted pursuant to section 401 of the Job Creation and Worker Assistance Act of 2002, if the rules set forth in § 31.6051-1T(j) are followed.

Pursuant to revised § 1.6045-3T(a), a broker that holds shares on behalf of a customer in a corporation that the broker knows or has reason to know has engaged in a transaction under § 1.6043-4T(c) or (d) must file an information return with respect to the customer, unless the customer is an exempt recipient, and furnish a copy of the information return to the customer. Revised § 1.6045-3T(c) provides that the broker must use Form 1099-B, along with transmittal Form 1096, for this information reporting requirement. With respect to transactions in 2003, the broker may elect to use Form 1099-CAP in lieu of Form 1099-B.

In completing Form 1099-B, brokers should aggregate all proceeds (cash, stock, and other property) provided to the customer in Box 2 (Stocks, bonds, etc.). Brokers should use Box 5 (Description) to report the name and address of the corporation which engaged in the transaction and the number and class of shares exchanged by the customers (as required by § 1.6045-3T(d)(2) and (3)).

For further information regarding this notice, contact Nancy Rose of the Office of the Associate Chief Counsel (Procedure & Administration), Administrative Provisions and Judicial Practice Division, at (202) 622-4910 (not a toll-free call).

.01 This revenue procedure provides an updated list of time-sensitive acts, the performance of which may be postponed under sections 7508 and 7508A of the Internal Revenue Code (Code). Section 7508 of the Code postpones specified acts for individuals serving in the Armed Forces of the United States or serving in support of such Armed Forces in a combat zone. Section 7508A of the Code permits a postponement of specified acts for taxpayers affected by a Presidentially declared disaster or a terroristic or military action. The list of acts in this revenue procedure supplements the list of postponed acts in section 7508(a)(1) of the Code and section 301.7508A-1(b) of the Regulations on Procedure and Administration.

.02 This revenue procedure does not, by itself, provide any postponements under sections 7508 or 7508A. In order for taxpayers to be entitled to a postponement of any act listed in this revenue procedure, the IRS generally will publish a Notice or issue other guidance (including an IRS News Release) providing relief with respect to a specific combat zone, Presidentially declared disaster, or a terroristic or military action.

.03 This revenue procedure will be updated as needed when the IRS determines that additional acts should be included in the list of postponed acts or that certain acts should be removed from the list. Also, taxpayers may recommend that additional acts be considered for postponement under sections 7508 and 7508A. See section 17 of this revenue procedure.

.01 Section 7508(a)(1) of the Internal Revenue Code permits a postponement of certain time-sensitive acts for individuals serving in the Armed Forces or in support of such Armed Forces in an area designated by the President as a combat zone under section 112. Among these acts are the filing of returns, the payment of tax, the filing of a Tax Court petition, and the filing of a refund claim. In the event of service in a combat zone, the acts specified in section 7508(a)(1) of the Code are automatically postponed. In addition, if the Service publishes a Notice or other guidance providing additional relief under section 7508, some or all of the acts listed in this revenue procedure may be postponed. Likewise, acts not listed in this revenue procedure may be included in published guidance.

.02 Section 7508A of the Code provides that certain acts performed by taxpayers and the government may be postponed if the taxpayer is affected by a Presidentially declared disaster or a terroristic or military action. A “Presidentially declared disaster” is defined in section 1033(h)(3) of the Code. A “terroristic or military action” is defined in section 692(c)(2) of the Code. Section 301.7508A-1(d)(1) of the regulations defines seven types of affected taxpayers, including any individual whose principal residence (for purposes of section 1033(h)(4)) is located in a “covered disaster area” and any business entity or sole proprietor whose principal place of business is located in a “covered disaster area.” Postponements under section 7508A are not available simply because a disaster or a terroristic or military action has occurred. Generally, the IRS will publish a Notice or issue other guidance (including an IRS News Release) authorizing the postpone ment. Such guidance will describe the acts postponed, the duration of the postponement, and the location of the covered disaster area. See, for example, Notice 2001-68, 2001-2 C.B. 504, supplementing Notice 2001-61, 2001-2 C.B. 305. When a Notice or other guidance for a particular disaster is published, or issued, the guidance generally will refer to this revenue procedure and may provide for a postponement of all the acts listed in the regulations and this revenue procedure. Alternatively, the guidance may provide that only certain acts listed in this revenue procedure are postponed based on the time when the disaster occurred, its severity, and other factors.

This revenue procedure applies to individuals serving in the Armed Forces in a combat zone, or in support of such Armed Forces, to affected taxpayers within the meaning of section 301.7508A-1(d)(1) of the regulations, and to taxpayers whom the IRS determines are affected by a terroristic or military action.

.01 The tables below list sections of the Internal Revenue Code and Treasury Regulations requiring the timely performance of specified acts that may be postponed under sections 7508 and 7508A.

.02 In order to avoid unnecessary duplication, the following tables do not include acts specified in sections 7508 or 7508A or the regulations thereunder. Thus, for example, no mention is made in the following tables of the filing of tax returns or the payment of taxes (or an installment thereof) because these acts are already covered by sections 7508 and 7508A and the regulations thereunder. Also, the following tables do not refer to the making of accounting method elections or any other elections required to be made on tax returns or attachments thereto. Reference to these elections is not necessary because postponement of the filing of a tax return automatically postpones the making of any election required to be made on the return or an attachment thereto.

.03 The following tables refer only to postponement of acts performed by taxpayers. Additional guidance will be published in the Internal Revenue Bulletin if a decision is made that acts performed by the government may be postponed under section 7508 or section 7508A.

.01 Bankruptcy and Collection

.02 Information Returns

.03 Miscellaneous

If you wish to recommend that other acts qualify for postponement, please write to the Office of Associate Chief Counsel, Procedure and Administration (Administrative Provisions and Judicial Practice Division), CC:PA:APJP:B2, 1111 Constitution Avenue, NW, Washington, DC 20224. Please mark “7508A List” on the envelope. In the alternative, e-mail your comments to:
Notice.Comments@irscounsel.treas.gov, and refer to Rev. Proc. 2004-13 in the Subject heading.

Rev. Proc. 2002-71, 2002-2 C.B. 850, is superseded.

This revenue procedure is effective for acts that may be performed on or after January 26, 2004.

The principal author of this revenue procedure is Marcy W. Mendelsohn of the Office of Associate Chief Counsel, Procedure and Administration (Administrative Provisions and Judicial Practice Division). For further information regarding this revenue procedure, contact Ms. Mendelsohn at (202) 622-4940 (not a toll-free call).

Proposed Form 8858 was developed to enable the Service to administer more efficiently the provisions of the tax law with respect to U.S. persons that own FDEs. The promulgation of the elective entity classification regulations in 1997 has facilitated the use of FDEs by U.S. persons with cross-border investments or operations. The Service has had significant difficulties administering the relevant provisions of the tax law because the information reporting requirements still date from a time when the substantive entity classification rules did not contemplate disregarded entities. The current lack of relevant information reporting with respect to FDEs has hindered the Service’s ability to identify potential compliance issues efficiently and effectively. The Service is committed to reducing the length of the corporate examination process and improving the currency of examinations. The information to be reported on Form 8858 will help the Service identify issues more efficiently, ensuring that t he Service can better focus resources and reduce exam cycle time.

Proposed Form 8858 is three pages long, and consists of one section and five schedules, plus a separate Schedule M. The introductory section of proposed Form 8858 requests identifying information. The schedules to proposed Form 8858 include requests for abbreviated income statement information (Schedule C), abbreviated balance sheet information (Schedule F), and summary information regarding taxable income or earnings and profits (Schedule H). Schedule C-1 requests information relating to the foreign currency rules applicable to foreign disregarded entities, and Schedule G consists of six specific yes/no questions. Schedule M requests information regarding related party transactions between an FDE owned by a CFP or a CFC and a related person other than the CFP or CFC. Information regarding transactions between an FDE and its tax owner or between or among FDEs of the same tax owner is not requested, except where such information is required to administer provisions of the tax law that recognize inte r-branch transactions, such as the foreign currency rules.

To ensure that taxpayer burden is minimized, each item of information requested on proposed Form 8858 has been evaluated to make certain that it is necessary to the administration of the tax law and that it is not duplicative of information already required to be reported. Proposed Form 8858 requests only the minimum information needed to identify the tax items that are attributable to an FDE. Almost all of the items of information requested from U.S. persons on proposed Form 8858 with respect to an FDE are currently required to be reported by such U.S. persons on an aggregate basis on, for example, Form 5471 (in the case of FDEs of CFCs) or Form 8865 (in the case of FDEs of CFPs).

Consistent with the objectives of proposed Form 8858 and consistent with section 6038 of the Code, with a view to minimizing taxpayer burden and aiding Service efforts to reduce exam cycle time, the Service and the Treasury also intend to review Forms 5471 and 8865 to ensure that the information requested on these forms enables the Service to administer effectively the tax law applicable to U.S. owners of CFCs and CFPs, is necessary to the administration of the tax law, and is not duplicative of information required to be reported on proposed Form 8858 or other forms.

The Service and the Treasury are requesting comments about proposed Form 8858. The Service and the Treasury are particularly interested in receiving comments on matters that should be addressed in the instructions to Form 8858, such as whether clarification is needed as to specific aspects of the filing requirements or the information requested on the form. The Service and the Treasury also are requesting comments about current Forms 5471 and 8865, in particular whether any modifications are necessary in light of proposed Form 8858 to ensure that the information requested on Forms 5471 and 8865 is necessary to the administration of the tax law and is not duplicative of information required to be reported on proposed Form 8858 or other forms. Written comments should be sent to: Tax Products Coordinating Committee, Internal Revenue Service, SE:W:CAR:MP:T, Room 6406, 1111 Constitution Avenue, N.W., Washington, D.C. 20224. Alternatively, comments may be e-mailed to tfpmail@publish.no.irs.gov. Comments must be received by March 1, 2004.

Draft of Form 8858

Image of Page 1 of Form 8858.

Please click here for the text description of the image.

Image of Page 2 of Form 8858.

Please click here for the text description of the image.

Image of draft of Schedule M of Form 8858.

Please click here for the text description of the image.

The IRS has released new Form 8806, Information Return for Acquisition of Control or Substantial Change in Capital Structure. A reporting corporation must use Form 8806 to report an acquisition of control or a substantial change in the capital structure of a domestic corporation.

You can obtain Form 8806 by telephone or by using IRS electronic information services.

Under Title 31, Code of Federal Regulations, Part 10, after notice and an opportunity for a proceeding before an administrative law judge, the following individuals have been disbarred from practice before the Internal Revenue Service:

Under Title 31, Code of Federal Regulations, Part 10, an attorney, certified public accountant, enrolled agent, or enrolled actuary, in order to avoid institution or conclusion of a proceeding for his or her disbarment or suspension from practice before the Internal Revenue Service, may offer his or her consent to suspension from such practice. The Director, Office of Professional Responsibility, in his discretion, may suspend an attorney, certified public accountant, enrolled agent or enrolled actuary in accordance with the consent offered.

The following individuals have been placed under consent suspension from practice before the Internal Revenue Service:

Under Title 31, Code of Federal Regulations, Part 10, the Director, Office of Professional Responsibility, is authorized to immediately suspend from practice before the Internal Revenue Service any practitioner who, within five years from the date the expedited proceeding is instituted (1) has had a license to practice as an attorney, certified public accountant, or actuary suspended or revoked for cause or (2) has been convicted of certain crimes.

The following individuals have been placed under suspension from practice before the Internal Revenue Service by virtue of the expedited proceeding provisions:

Under Title 31, Code of Federal Regulations, Part 10, an enrolled agent, in order to avoid the institution or conclusion of a proceeding for his or her disbarment or suspension from practice before the Internal Revenue Service, may offer his or her resignation as an enrolled agent. The Director, Office of Professional Responsibility, in his discretion, may accept the offered resignation.

The Director, Office of Professional Responsibility, has accepted offers of resignation as an enrolled agent from the following individuals:

Internal Revenue Service (IRS), Treasury.

Correction to notice of proposed rulemaking and notice of public hearing.

This document contains corrections to a notice of proposed rulemaking (REG-146893-02, REG-115037-00, 2003-44 I.R.B. 967) and notice of public hearing that was published in the Federal Register on Wednesday, September 10, 2003 (68 FR 53448). The proposed regulations provide guidance regarding the treatment of controlled services transactions under section 482 and the allocation of income from intangibles in particular when one controlled taxpayer performs activities that increase (or are expected to increase) the valve of an intangible owned by another controlled taxpayer.

J. Peter Luedtke or Helen Hong-George, (202) 435-5265 (not a toll-free number).