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ATTACHMENT
1. QI is subject to the following laws and
regulations of [name of country] governing the requirements of QI to obtain documentation confirming the identity of QI’s
account holders.
2. QI represents that [name and citations
to laws and regulations identified in item
1, above] are enforced by [name of enforcement body] and QI shall provide the
IRS with an English translation of any reports or other documentation issued by
[name of enforcement body] that relates
to QI’s failure to comply with [laws and
regulations identified in 1, above].
3. QI represents that the following penalties apply for failure to obtain, maintain,
and evaluate documentation obtained
under [name and citations to laws and
regulations identified in item 1].
4. QI shall use the following specific documentary evidence to comply with section 5 of this Agreement:
a.
For natural persons:
b.
For legal persons:
5. QI shall follow the procedures set forth
below to confirm the identity of account
holders that do not open accounts in person.

I. PURPOSE

Notice 2000–3

This notice provides additional guidance
regarding 401(k) plans that are intended to
satisfy the 401(k) safe harbors. This guidance responds to comments and suggestions regarding ways to make it easier for
employers both to adopt and to administer
401(k) safe harbor plans. The notice:
• Encourages adoption of 401(k) safe
harbor plans by giving sponsors of existing 401(k) plans the flexibility to
wait as late as December 1 of a calendar year to decide to adopt the 401(k)
safe harbor 3-percent employer nonelective contribution method for that
calendar year;
• Permits 401(k) safe harbor plans to
match elective or employee contributions on the basis of compensation for
a payroll period, month, or quarter;
• Provides an extended period of time
— until May 1, 2000 — for 401(k)
plan sponsors adopting the 401(k)
safe harbor methods for the first time
in 2000 to provide the required safe
harbor notice to employees;
• Provides explicitly that 401(k) safe
harbor plans are permitted to require
salary reduction elections to be made
using whole percentages of pay or
whole dollar amounts;
• Permits plan sponsors to provide the
401(k) safe harbor notice electronically and otherwise simplifies the notice requirement;
• Permits 401(k) safe harbor plans to
provide matching contributions on an
employee’s aggregate employee and
elective contributions;
• Makes clear that 401(k) safe harbor
plans are permitted to apply to employee after-tax contributions a suspension similar to the 12-month suspension that may be applied to employee
elective contributions after an in-service withdrawal of those contributions;
• Permits plan sponsors using the
401(k) safe harbor matching contribution method to exit the safe harbor
prospectively during a plan year (and
switch to ADP and ACP nondiscrimination testing) if employees are notified beforehand;
• Clarifies the interaction between the
401(k) safe harbors and the election to
separately test otherwise excludable
employees for purposes of the
§ 410(b) minimum coverage require-

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413

SECTION 5. EFFECTIVE DATE
This revenue procedure is effective on
January 24, 2000. The IRS may conclude
agreements under this revenue procedure
at any time after that date, but such agreements will not have effect before the date
specified in the agreement.
SECTION 6. EFFECT ON OTHER
REVENUE PROCEDURES
This revenue procedure supersedes
Rev. Proc. 98–27, 1998–15 I.R.B. 30. In
addition, Notice 99–8, 1999–5 I.R.B. 26
is obsoleted.
SECTION 7. FURTHER
INFORMATION
For further information regarding this
revenue procedure, telephone the Office of
Assistant Commissioner (International) at
(202) 874-1800 (not a toll-free number).

Cash or Deferred Arrangements;
Nondiscrimination

ments; and
Makes clear how the 401(k) safe harbor rules apply in the case of a profit
sharing plan to which a 401(k) feature
is added for the first time during a
plan year.
In addition to modifying the guidance
provided in Notice 98–52, 1998–46 I.R.B.
16, relating to 401(k) safe harbor plans,
this notice requests comments regarding
two significant areas that relate to 401(k)
plans in general. The two areas are (1)
potential approaches for simplifying the
multiple use test applicable to § 401(k)
plans, and (2) potential approaches for applying the highly compensated employee
definition under § 414(q), the nondiscrimination requirements under § 401(k) and
401(m), and possibly other applicable
qualification requirements, when a plan
sponsor is involved in a merger, acquisition, disposition, or similar transaction.
•

II. BACKGROUND
A. SBJPA Amendments to §§ 401(k),
401(m), and 414(q)
Under § 401(k)(3) and § 401(m)(2) of
the Code, the actual deferral percentage
(“ADP”) and the actual contribution percentage (“ACP”) of highly compensated
employees (“HCEs”) are compared with
those of nonhighly compensated employees (“NHCEs”). Section 414(q) defines a
highly compensated employee for purposes of §§ 401(k) and 401(m), and for
other purposes under the Code.
Section 1433(a) and (b) of the Small
Business Job Protection Act of 1996
(“SBJPA”) added new §§ 401(k)(12) and
401(m)(11) to the Code, effective for plan
years beginning after December 31, 1998,
to provide design-based safe harbor methods for satisfying the ADP test contained
in § 401(k)(3)(A)(ii) and the ACP test
contained in § 401(m)(2). Section
401(k)(12) provides that a cash or deferred arrangement (“CODA”) is treated
as satisfying the ADP test if the CODA
meets certain contribution and notice requirements. Section 401(m)(11) provides
that a defined contribution plan is treated
as satisfying the ACP test with respect to
matching contributions if the plan meets
the contribution and notice requirements
contained in § 401(k)(12) and in addition
meets certain limitations on the amount
and rate of matching contributions available under the plan.

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Section 1433(c) of SBJPA amended
§ 401(k)(3)(A) and § 401(m)(2)(A), effective for plan years beginning after December 31, 1996, to provide for the use of
prior year data in determining the ADP
and ACP of NHCEs, while current year
data is used for HCEs. Alternatively, an
employer may elect to use current year
data for determining the ADP and ACP
for both HCEs and NHCEs, but this election may be changed only as provided by
the Secretary. Prior to the effective date
of these amendments, plans were required
to use current year data in determining the
ADP and ACP for both HCEs and
NHCEs. Section 1433(d) of SBJPA
amended § 401(k)(3) and § 401(m)(3) to
provide a special rule for determining the
ADP and ACP for NHCEs for the first
plan year of a plan (other than a successor
plan) where the prior year testing method
is used.
Section 1433(e) of SBJPA amended
§ 401(k)(8)(C) and § 401(m)(6)(C), effective for plan years beginning after December 31, 1996, to provide that the distribution of excess contributions and
excess aggregate contributions will be
made on the basis of the amount of contributions by, or on behalf of, each HCE.
Prior to the effective date of these amendments, plans were required to distribute
excess contributions and excess aggregate
contributions using a method based on the
actual deferral ratio or actual contribution
ratio of each HCE.
Section 1431 of SBJPA amended
§ 414(q)(1) to provide that the term
“highly compensated employee” means
any employee who (1) was a 5-percent
owner at any time during the year or the
preceding year, or (2) for the preceding
year had compensation from the employer
in excess of $80,000 (as adjusted) and, if
the employer so elects, was in the toppaid group for the preceding year. The
amendments made by § 1431 generally
apply to years beginning after December
31, 1996.
B.Previous Guidance on the SBJPA
Amendments to §§ 401(k), 401(m), and
414(q)
Notice 972, 1997–1 C.B. 348, provides
guidance on determining the individuals
who are taken into account in computing
the ADP or ACP for NHCEs for the prior
year under the prior year testing method.
The notice also prescribes rules for distri-

January 24, 2000

butions of excess contributions and excess aggregate contributions.
Notice 97–45, 1997–2 C.B. 296, provides guidance relating to the definition
of highly compensated employee under
§ 414(q), as amended by § 1431 of
SBJPA.
Notice 98–1, 1998–3 I.R.B. 42, provides guidance relating to the current and
prior year ADP and ACP testing methods.
Notice 98–52 provides guidance on the
safe harbor methods under § 401(k)(12)
for satisfying the ADP test contained in
§ 401(k)(3)(A)(ii) and safe harbor methods under § 401(m)(11) for satisfying the
ACP test contained in § 401(m)(2).
C. Definitions
Any term used in this notice that is defined in Notice 97–45, 98–1, or 98–52, or
in the regulations under § 401(k), 401(m),
or 414(q) has the same meaning as in
those notices and regulations. For example, the term “employee contribution”
means any mandatory or voluntary contribution to the plan that is treated at the
time of contribution as an after-tax employee contribution (e.g., by reporting the
contribution as taxable income subject to
applicable withholding requirements) and
is allocated to a separate account to which
the attributable earnings and losses are allocated.
In addition, for purposes of this notice,
(1) a “401(k) safe harbor plan” means a
CODA that is intended to satisfy the ADP
test safe harbor under section V of Notice
98–52, and, if applicable, a defined contribution plan (including a § 403(b) plan)
that is intended to satisfy the ACP test
safe harbor under section VI of Notice
98–52, (2) the “401(k) safe harbor nonelective contribution method” means the
alternative for satisfying the safe harbor
contribution requirement of the ADP test
safe harbor under section V.B. of Notice
98–52 that includes satisfying the nonelective contribution requirement under
section V.B.2. of Notice 98–52, (3) the
“401(k) safe harbor matching contribution method” means the alternative for
satisfying the safe harbor contribution requirement of the ADP test safe harbor
under section V.B. of Notice 98–52 that
includes satisfying the matching contribution requirement under section V.B.1. of
Notice 98–52, and (4) a “401(k) safe harbor method” means the 401(k) safe harbor
nonelective contribution method or the

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401(k) safe harbor matching contribution
method.
D. Effect on Regulations
Because of the amendments made to
§§ 401(k), 401(m), and 414(q) by SBJPA,
as well as by other recent legislation, certain portions of §§ 1.401(k)–1,
1.401(m)–1,
1.401(m)–2,
and
1.414(q)–1T of the Income Tax Regulations no longer reflect current law. However, these regulations continue to apply
to the extent they are not inconsistent with
the Code, Notices 97–2, 97–45, 98–1, and
98–52, this notice, and any subsequent
guidance.
III. Questions and Answers Relating to
the 401(k) and (m) Safe Harbor Methods
Flexibility in Adoption of 401(k) Safe
Harbor Nonelective Contribution Method
Q-1. By what date must the sponsor of
a 401(k) plan adopt the 401(k) safe harbor
nonelective contribution method for a
plan year?
A-1. Generally, a plan that is intended
to satisfy the 401(k) safe harbor requirements for a plan year must, prior to the
beginning of the plan year, contain language to that effect and must specify the
401(k) safe harbor method that will be
used. (However, see section XI.B. of Notice 98–52 and Rev. Proc. 99–23,
1999–16 I.R.B. 5, for the remedial
amendment period applicable to plan
changes incorporating the 401(k) safe
harbor provisions.)
Notwithstanding section XI.A. of Notice 98–52, a plan that provides that it will
satisfy the current year ADP (and, if applicable, ACP) testing method for a plan
year may be amended not later than 30
days before the last day of the plan year to
specify that the 401(k) safe harbor nonelective contribution method will be used
for the plan year (including that the safe
harbor nonelective contribution will be
made), provided that the plan otherwise
satisfies the ADP (and, if applicable,
ACP) test safe harbor for the plan year
(including the notice requirement under
section V.C. of Notice 98–52, as modified
by this notice). For purposes of the preceding sentence, in applying the content
requirement of section V.C.1 of Notice
98–52:
(1) Instead of stating the amount of the
safe harbor nonelective contribution to
be made under the plan, the notice

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given to eligible employees before the
beginning of the plan year must provide that (a) the plan may be amended
during the plan year to provide that the
employer will make a safe harbor nonelective contribution of at least 3 percent to the plan for the plan year, and
(b) if the plan is so amended, a supplemental notice will be given to eligible
employees 30 days prior to the last day
of the plan year informing them of such
an amendment, and
(2) A supplemental notice must be provided to all eligible employees no later
than 30 days prior to the last day of the
plan year stating that a 3 percent safe
harbor nonelective contribution will be
made for the plan year. For administrative convenience, the supplemental notice may be provided separately or as
part of the safe harbor notice for the
following plan year.
Similar rules apply if, pursuant to section IX.A.1. of Notice 98–52, the safe
harbor nonelective contribution is made
to another plan of the employer.
Thus, for example, a plan sponsor that
maintains a calendar-year 401(k) plan
using the current year ADP testing
method and that wishes to have the flexibility to decide toward the end of a plan
year whether or not to adopt the 401(k)
safe harbor nonelective contribution
method with respect to its 401(k) plan
could achieve that flexibility by providing
the initial notice described in section V.C.
of Notice 98–52 (as modified by this
Q&A-1, and Q&A-7 and Q&A-8 of this
notice) before the beginning of the plan
year, as provided under section V.C.2. of
Notice 98–52 (as modified by Q&A-9 of
this notice). If the plan sponsor then decides to adopt the 401(k) safe harbor nonelective contribution method for the plan
year, the plan sponsor must, by December
1 of the plan year, (1) amend the 401(k)
plan accordingly and (2) provide a supplemental notice to all eligible employees
stating that a 3-percent safe harbor nonelective contribution will be made for the
plan year.
A plan sponsor that takes advantage of
the flexibility provided under this Q&A-1
is not required to continue using the
401(k) safe harbor nonelective contribution method for the following plan year
and is not limited in the number of years
that it takes advantage of this flexibility.

2000–4 I.R.B.

In order to further facilitate the adoption
of the 401(k) safe harbor nonelective contribution method under this Q&A-1, the
Service intends to provide a simplified,
pre-approved means of adopting the
401(k) safe harbor nonelective contribution method under the Service’s master
and prototype plan program.
Safe Harbor Matching Contribution
Requirements
Q-2. Can a 401(k) safe harbor plan
match elective and employee contributions on a payroll-by-payroll basis (instead of on an annual basis) without making additional contributions at the end of
the year to take into account the total
amount of an employee’s compensation
for the plan year?
A-2. Notwithstanding section VII.A.
(or any other provision) of Notice 98–52,
the requirements of sections V.B.1. and
VI.B. of Notice 98–52 that relate to
matching contributions may be met for a
plan year by meeting such requirements
either (1) with respect to the plan year as a
whole, or (2) if the plan so provides, separately with respect to each payroll period
(or with respect to all payroll periods ending with or within each month or planyear quarter) taken into account under the
arrangement for the plan year (the “payroll
period method”). If the payroll period
method is used, however, matching contributions with respect to elective or employee contributions made during a plan
year quarter beginning after May 1, 2000
must be contributed to the plan by the last
day of the following plan year quarter.
Accordingly, in the case of a calendar year
plan that uses the payroll period method,
matching contributions with respect to
elective or employee contributions made
during the calendar quarter beginning July
1, 2000, must be contributed to the plan by
December 31, 2000. The payroll period
method applies only for purposes of satisfying the ADP safe harbor matching contribution requirements of § 401(k)(12)
(section V.B.1. of Notice 98–52) and the
ACP safe harbor matching contribution requirements of § 401(m)(11) (section VI.B.
of Notice 98–52).
Q-3. Can a 401(k) safe harbor plan require that employees make elective contributions in whole percentages of pay or
whole dollar amounts?
A-3.
Notwithstanding section

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V.B.1.c.ii. of Notice 98–52, a plan will
not fail to satisfy the requirements of sections V.B.1. and VI.B. of Notice 98–52
that relate to matching contributions
merely because the plan requires employees to make cash or deferred or employee
contribution elections in whole percentages of compensation or whole dollar
amounts.
Q-4. Can a 401(k) safe harbor plan
suspend additional employee contributions for up to 12 months after the in-service withdrawal of employee contributions?
A-4. Notwithstanding section V.B.1.c.
and section VI.B.3. of Notice 98–52, a
plan will not fail to satisfy the ACP test
safe harbor of section VI of Notice 98–52
merely because, after a withdrawal of employee contributions from the plan, the
plan suspends additional employee contributions for a period that does not exceed
12 months. See section V.B.1.c.iv. of Notice 98–52 for a similar exception that applies for purposes of hardship distributions of elective contributions.
Q-5. How do the rules of sections
V.B.1. and VI.B.3. of Notice 98–52 apply
to a plan that provides matching contributions on both elective contributions and
employee contributions?
A-5. A plan will not fail to satisfy the
requirements of section V.B.1.a., V.B.1.b.,
or VI.B.3.(iii) of Notice 98–52 merely because the plan provides matching contributions on both elective contributions and
employee contributions if, under the
terms of the plan, either (1) the matching
contributions provided on an employee’s
elective contributions are not affected by
the amount of the employee’s employee
contributions or (2) matching contributions are made with respect to the sum of
an employee’s elective and employee
contributions under the same terms as
matching contributions are made with respect to elective contributions.
For example, a plan will not fail to satisfy the matching contribution requirement of section V.B.1. or the ACP test
safe harbor of section VI of Notice 98–52
merely because the plan provides a required matching contribution equal to 100
percent of the sum of each eligible employee’s elective and employee contributions up to 4 percent of compensation.
This is the case even if, during a plan
year, an eligible employee first makes

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employee contributions of 4 percent of
compensation that are matched by the employer and subsequently makes elective
contributions that go unmatched, provided that the same match would have
been available if the employee had instead made only elective contributions.
Q-6. May a plan that uses the 401(k)
safe harbor matching contribution method
suspend matching contributions on future
elective and employee contributions during a plan year and instead use the current
year ADP (and, if applicable, ACP) testing method for the plan year?
A-6. A plan that uses the 401(k) safe
harbor matching contribution method will
not fail to satisfy § 401(k) (or § 401(m))
for a plan year merely because the plan is
amended during the plan year to reduce or
eliminate matching contributions, provided:
(1) A supplemental notice is given to all
eligible employees explaining the consequences of the amendment and informing them of the effective date of
the reduction or elimination of matching contributions and that they have a
reasonable opportunity (including a
reasonable period) to change their cash
or deferred elections and, if applicable,
their employee contribution elections;
(2) The reduction or elimination of
matching contributions is effective no
earlier than the later of (i) 30 days after
eligible employees are given the supplemental notice and (ii) the date the
amendment is adopted;
(3) Eligible employees are given a reasonable opportunity (including a reasonable period) prior to the reduction
or elimination of matching contributions to change their cash or deferred
elections and, if applicable, their employee contribution elections;
(4) The plan is amended to provide that
the ADP test and, if applicable, the
ACP test will be performed and satisfied for the entire plan year using the
current year testing method; and
(5) All other safe harbor requirements
are satisfied through the effective date
of the amendment.
Notice Requirement
Q-7. Can a plan use electronic media
to satisfy the 401(k) safe harbor notice requirement?
A-7. The Service and Treasury are cur-

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rently reviewing the legal and policy issues relating to the satisfaction of the safe
harbor notice requirement through the use
of electronic media. Prior to the issuance
of additional guidance on this matter,
however, a plan will not fail to satisfy the
notice requirement of section V.C. of Notice 98–52 (as modified by this notice)
with respect to an employee merely because, instead of receiving the notice on a
written paper document, the employee receives the notice through an electronic
medium reasonably accessible to the employee, provided that (1) the system under
which the electronic notice is provided is
reasonably designed to provide the notice
in a manner no less understandable to the
employee than a written paper document
and (2) under such system, at the time the
notice is provided, the employee is advised that the employee may request and
receive the notice on a written paper document at no charge, and, upon request,
that document is provided to the employee at no charge. This Q&A-7 also applies for purposes of providing the supplemental notices under Q&A-1 and
Q&A-6 of this notice.
Q-8. Can a safe harbor notice crossreference the plan’s summary plan description for a portion of the information
required in the notice?
A-8. Section V.C. of Notice 98–52 provides that the notice requirement of that
section is satisfied if each eligible employee for the plan year is given written
notice of the employee’s rights and obligations under the plan and the notice satisfies the content requirement of paragraph
1 of that section and the timing requirement of paragraph 2 of that section.
Notwithstanding paragraph 1.a. of section V.C. of Notice 98–52, a plan will not
fail to satisfy the content requirement
merely because, in the case of the information described in items (ii) (relating to
any other contributions under the plan),
(iii) (relating to the plan to which safe
harbor contributions will be made), (iv)
(relating to the type and amount of compensation that may be deferred), and (vii)
(relating to withdrawal and vesting provisions) of paragraph 1.a., the notice instead
cross-references the relevant portions of
an up-to-date summary plan description
that has been provided (or concurrently is
provided) to the employee. However, the
notice must still accurately describe (1)

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the safe harbor matching or nonelective
contribution formula used under the plan
(including a description of the levels of
matching contributions, if any, available
under the plan) and state that these contributions (as well as elective contributions)
are fully vested when made and (2) how
to make cash or deferred elections (including any administrative requirements
that apply to such elections) and the periods available under the plan for making
such elections. In addition, the notice
must also provide information that makes
it easy for eligible employees to obtain
additional information about the plan (including an additional copy of the summary plan description) such as telephone
numbers, addresses and, if applicable,
electronic addresses, of the individuals or
offices from whom employees can obtain
such plan information.
Q-9. By what date must the safe harbor
notice be provided to employees in the
case of a plan that adopts a 401(k) safe
harbor method for the first time in the
year 2000?
A-9. Generally, the notice required
under section V.C. of Notice 98–52 must
be provided in accordance with the timing
requirements of section V.C.2. (i.e., the
notice must be provided within a reasonable period before the beginning of the
plan year (or, in the year an employee becomes eligible, within a reasonable period
before the employee becomes eligible)).
However, in an effort to allow plan sponsors that are considering the adoption of a
401(k) safe harbor method to fully utilize
the guidance provided in this notice for
plan years beginning in the year 2000, the
Service and Treasury have determined
that transition relief is appropriate. Accordingly, in the case of a plan sponsor
that adopts a 401(k) safe harbor method
for the first time with respect to a plan for
a plan year that begins on or after January
1, 2000 and on or before June 1, 2000, the
notice described in section V.C. of Notice
98–52 satisfies the timing requirement for
that plan year if the notice is given on or
before May 1, 2000. This transition relief
applies whether the 401(k) safe harbor
method is adopted under a newly established 401(k) plan or under a preexisting
401(k) plan.
In order to satisfy the 401(k) safe harbor requirements for the plan year, however, a plan that uses the transition relief

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provided under this Q&A-9 still must satisfy the otherwise applicable requirements of Notice 98–52 (as modified by
this notice) with respect to the entire plan
year. Thus, for example, in the case of a
401(k) plan that uses the 401(k) safe harbor matching contribution method,
matching contributions still must be made
with respect to elective contributions
made prior to the date the safe harbor notice is provided to employees in the same
amount as if the 401(k) safe harbor
matching contribution method had been
in place since the beginning of the plan
year.
Interaction Between Safe Harbor
Methods and § 410(b)(4) Election
Q-10. Is a plan required to provide safe
harbor matching or nonelective contributions to participants who have not yet attained age 21 and completed a year of service if the plan uses one of the 401(k) safe
harbor methods?
A-10. As provided in section IX.B.1.
of Notice 98–52, if, pursuant to
§ 410(b)(4)(B), an employer applies
§ 410(b) separately to the portion of a
plan (within the meaning of § 414(l)) that
benefits only employees who satisfy age
and service conditions under the plan that
are lower than the greatest minimum age
and service conditions permitted under
§ 410(a), the plan is treated as two separate plans for purposes of § 401(k), and
the ADP test safe harbor need not be satisfied with respect to both plans in order for
one of the plans to take advantage of the
ADP test safe harbor. Accordingly, a plan
that uses one of the 401(k) safe harbor
methods is not required to provide safe
harbor matching or nonelective contributions to participants who have not yet attained age 21 and completed a year of service. Those employees do not have to be
treated as eligible employees for purposes
of the 401(k) safe harbors, so long as the
employer has elected to treat them separately for coverage purposes pursuant to
§ 410(b)(4). However, in such a case, the
plan must specifically provide that elective contributions (and, if applicable,
matching contributions) on behalf of
those employees will satisfy the ADP test
(and, if applicable, the ACP test).
Addition of 401(k) Safe Harbor
Provisions to Existing Profit-Sharing

2000–4 I.R.B.

Plans
Q-11. Can a CODA that is added to an
existing profit-sharing plan for the first
time during a plan year use a 401(k) safe
harbor method for that plan year?
A-11. Generally, the safe harbor requirements must be satisfied for the entire
plan year (see sections V.A. and VI.A. of
Notice 98–52). In addition, except in the
case of a newly established plan, the plan
year must be 12 months long (see section
X of Notice 98–52). Notwithstanding
these requirements, however, in the case
of a CODA that is added to an existing
profit-sharing, stock bonus, or pre-ERISA
money purchase pension plan for the first
time during a plan year, the requirements
of section V of Notice 98–52 will be
treated as being satisfied for the entire
plan year and the CODA will not be
treated as failing to satisfy the requirements of section X of Notice 98–52, provided (1) the plan is not a successor plan
(within the meaning of Notice 98–1), (2)
the CODA is made effective no later than
3 months prior to the end of the plan year,
and (3) the requirements of Notice 98–52
are otherwise satisfied for the entire period from the effective date of the CODA
to the end of the plan year. Thus, an existing calendar-year profit-sharing plan that
does not contain a CODA may be
amended as late as October 1 to add a
CODA that uses a 401(k) safe harbor
method for that plan year.
A similar rule applies for purposes of
section VI of Notice 98–52 in the case of
the addition of matching contributions for
the first time to an existing defined contribution plan at the same time as the adoption of the CODA.
IV SIMPLIFYING THE LIMITATION
ON MULTIPLE USE
The limitation on multiple use applies
to the current and prior year ADP and
ACP testing methods (i.e., the nondiscrimination testing methods that § 401(k)
plans must satisfy if they do not satisfy
the 401(k) safe harbors or the SIMPLE
401(k) requirements). The limitation on
multiple use is a nondiscrimination provision intended to limit the extent to which
highly compensated employees receive
greater benefits (as a percentage of pay)
than nonhighly compensated employees,
primarily under § 401(k) plans that pro-

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vide for matching contributions. The Service and Treasury are considering approaches that would substantially simplify the limitation on multiple use
administratively, while retaining most of
the value of this limitation in ensuring a
fairer distribution of benefits under
§ 401(k) plans and, in many cases, encouraging employers to make fully-vested
nonelective contributions on behalf of
nonhighly compensated employees.
Generally, the average rate of elective
contributions under a § 401(k) plan on behalf of highly compensated employees
may not exceed 125 percent of the average rate of elective contributions on behalf of nonhighly compensated employees. However, the Code provides an
“alternative limitation” that permits the
average rate of elective contributions
under a § 401(k) plan on behalf of highly
compensated employees to exceed 125
percent of the average rate on behalf of
nonhighly compensated employees, provided that average rate for highly compensated employees is not greater than 2
percentage points more than the average
rate for nonhighly compensated employees and is not greater than 200 percent of
that of nonhighly compensated employees. The alternative limitation is particularly relevant where the average rate of
elective contributions on behalf of nonhighly compensated employees is relatively low. For example, if the average
rate of elective contributions on behalf of
nonhighly compensated employees is 4
percent of pay, then the average rate of
elective contributions on behalf of highly
compensated employees may not exceed
6 percent of pay. Absent the alternative
limitation, the average rate of elective
contributions on behalf of highly compensated employees could not exceed 5 percent in such a case. Similar rules apply
separately to the average rate of matching
and employee after-tax contributions of
highly compensated employees under a
§ 401(m) plan.
Section 401(m)(9) requires the Secretary of the Treasury to “prescribe such
regulations as may be necessary to carry
out the purposes of this subsection and
subsection (k) including . . . such regulations as may be necessary to prevent the
multiple use of the alternative limitation
with respect to any highly compensated
employee.” Accordingly, while the alter-

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native limitation may be used to satisfy
either the nondiscrimination test for elective contributions or the nondiscrimination test for matching and employee aftertax contributions, the alternative
limitation is not available to satisfy both
tests. Absent the statutorily contemplated
limitation on multiple use, the combined
rates of elective and matching contributions on behalf of highly compensated
employees under a § 401(k) plan that provides for matching contributions could,
for example, be as much as 8 percent (i.e.,
an ADP of 4 percent and an ACP of 4 percent) while the combined rates for nonhighly compensated employees could be
as little as 4 percent (i.e., an ADP of 2 percent and an ACP of 2 percent). In this
case, the limitation on multiple use would
reduce this 4-percentage-point disparity
to 2_ percentage points.
While many employers choose to comply with the limitation on multiple use by
reducing or limiting the elective and/or
matching contributions on behalf of
highly compensated employees, other
employers instead increase the employer
contributions made on behalf of nonhighly compensated employees. Accordingly, because of the limitation on multiple use, some moderate-income
employees covered under 401(k) plans
that provide matching contributions receive employer-provided benefits that
amount to hundreds of dollars a year.
However, the approach taken under existing regulations in implementing the
limitation on multiple use may be unnecessarily complicated. As a result, the Service and Treasury are reviewing potential
changes to these regulations that would
substantially simplify the application of
the limitation on multiple use.
Under one possible approach, the
multi-step mathematical test used in determining the aggregate limit on the rates
of contributions for highly compensated
employees would be replaced by a simple
“look-up” table that is based on ranges of
aggregate contribution rates for nonhighly
compensated employees. For example,
such a table could provide that if the combined ADP and ACP on behalf of nonhighly compensated employees is between 5 percent and 6 percent, then the
combined ADP and ACP on behalf of
highly compensated employees could be
as much as 3 percentage points higher.

January 24, 2000

Alternatively, or in addition, the scope
of the limitation’s application might be
narrowed slightly in order to give relief in
cases where the value of the limitation
would be inconsequential in comparison
to the administrative expense of compliance. For example, where the combined
ADP and ACP on behalf of nonhighly
compensated employees exceeds a certain
level (e.g., 9 percent or 10 percent), the
limitation on multiple use might be
deemed satisfied.
The Service and Treasury welcome
comments on these and other potential approaches for simplifying the limitation on
multiple use. Comments on the effect of
the SBJPA changes to the methods for
correcting excess contributions and excess aggregate contributions and the relation of those changes to corrections of
multiple use limitation failures are also
welcome. In addition, comments are welcome regarding whether it is more appropriate (as a matter of authority or otherwise) for simplification of the limitation
on multiple use to be effected administratively or legislatively.
V POTENTIAL APPROACHES FOR
APPLYING VARIOUS
QUALIFICATION REQUIREMENTS
IN MERGERS, ACQUISITIONS,
DISPOSITIONS, AND SIMILAR
TRANSACTIONS
The Service and Treasury are in the
process of developing guidance regarding
the application of the nondiscrimination
requirements under § 401(k) and
§ 401(m), and the highly compensated
employee definition under § 414(q), in
situations where the entities sponsoring
the plans are involved in mergers, acquisitions, dispositions, or similar transactions.
Uncertainty among plan sponsors regarding the appropriate application of various
qualification requirements in the context
of business transactions and reorganizations may be leading to reduced employee
protections, increased transaction costs
for employers, and the inconsistent application of these requirements among different employers.
The guidance developed by the Service
and Treasury will be designed to balance
the need to protect employees’ pension
rights and benefits and provide for the fair
distribution of tax-favored pension benefits with the potential burdens on employ-

418

ers of data collection and compliance in
the context of business transactions and
reorganizations. Simplified alternatives
may be provided to address those types of
transactions in which the information flow
between the selling and purchasing entities or other entities involved in the transactions traditionally has been minimal.
As part of this process, the Service and
Treasury are seeking comments from plan
participants, plan sponsors, and other interested parties regarding the following:
(1) The types of business transactions
and reorganizations (e.g., stock acquisitions, acquisitions of substantially all
the assets of a trade or business, or
other economically similar transactions) that reasonably would warrant
continuity of treatment for purposes of
the nondiscrimination requirements
under § 401(k) and § 401(m) and the
highly compensated employee definition under § 414(q), as well as the degree of specificity that is desirable or
appropriate in describing these transactions.
(2) The application of the nondiscrimination requirements under § 401(k) and
§ 401(m) and the highly compensated
employee definition under § 414(q) in
cases where plans are combined or divided during (instead of at the beginning of) a plan year as a result of a
business transaction or reorganization
that occurs during a plan year.
(3) Whether more than one testing alternative may be appropriate when applying the nondiscrimination requirements under § 401(k) and § 401(m) in
the case of mid-year transactions. For
example, under certain circumstances,
one approach to mid-year business
transactions that also involve combining plans might be to give plan sponsors the option of applying the § 401(k)
and § 401(m) nondiscrimination requirements on a pre-transaction and
post-transaction basis as if there were
separate short plan years for the uncombined and combined plans, or applying these requirements once on the
basis of the entire plan year for the
combined plan. A similar approach
might apply in cases where plans are
divided as a result of mid-year business
transactions.
(4) The application of other plan qualification provisions (in addition to the

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nondiscrimination requirements for
§ 401(k) and § 401(m) plans and the
highly compensated employee definition under § 414(q)) in the context of
business transactions and reorganizations, whether or not such transactions
occur in the middle of a plan year. For
example, § 414(a)(2) grants the Secretary of the Treasury the authority to
prescribe regulations regarding the
treatment of service with a predecessor
employer as service with a successor
employer. Comments are invited on
whether regulations should be proposed to address situations in which
participants experience an interruption
of their vesting service under § 411(a)
and eligibility service under § 410(a)
by reason of certain business transactions or reorganizations.
VI REQUEST FOR COMMENTS
In addition to inviting comments on the
potential approaches for simplifying the
limitation on multiple use and for applying various qualification requirements in
cases where plan sponsors are involved in
mergers, acquisitions, and similar transactions, the Service and Treasury invite
comments on the 401(k) safe harbor guidance provided in this notice. It is anticipated that further guidance in these areas
would take the form of proposed regulations.
Comments should be submitted by
March 24, 2000, in writing, and should
reference Notice 2000–3. Comments can
be addressed to CC:DOM:CORP:R (Notice 2000–3), room 5228, Internal Revenue Service, POB 7604, Ben Franklin
Station, Washington, DC 20044. In the
alternative, comments may be hand delivered between the hours of 8 a.m. and 5
p.m. to CC:DOM:CORP:R (Notice
2000–3), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue
NW., Washington, DC. Alternatively, taxpayers may transmit comments electronically via the following Internet site: Cynthia.Grigsby@m1.irscounsel.treas.gov.
VII. EFFECT ON OTHER
DOCUMENTS
Notice 98–52 is modified.
PAPERWORK REDUCTION ACT

tained in this notice has been reviewed
and approved by the Office of Management and Budget (OMB) in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under control number 15451669.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the collection of information displays a valid
OMB control number.
The collections of information in this
notice are in section III, Q&As 1 and 2.
The collections of information are required to enable personnel in the Tax Exempt and Government Entities Division
of the Internal Revenue Service to determine if an employer’s retirement plan satisfies the requirements to obtain favorable
tax treatment and to inform plan participants of their rights and obligations under
the plan. The likely respondents are businesses or other for-profit institutions, and
not-for-profit institutions.
The estimated total annual reporting
burden is 8,000 hours.
The estimated annual burden per respondent is 1 hour and 20 minutes. The
estimated number of respondents is 6,000.
The estimated annual frequency of responses is on occasion.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this notice is
Roger Kuehnle of the Tax Exempt and
Government Entities Division. For further information regarding this notice,
please contact the Employee Plans’ taxpayer assistance telephone service at
(202) 622-6074/6075 (not toll-free numbers) between the hours of 1:30 and 3:30
p.m. Eastern Time, Monday through
Thursday.

Section 1504(d) Elections —
Deferral of Termination
Notice 2000–7

The collection of information con-

2000–4 I.R.B.

419

PURPOSE
The purpose of this Notice is to provide
guidance regarding the effect of the repeal
of certain Canadian banking legislation
on elections under section 1504(d) of the
Internal Revenue Code.
BACKGROUND
Section 1504(d) of the Code allows, in
certain circumstances, a domestic corporation owning or controlling, directly or
indirectly, 100 percent of the capital stock
of a Mexican or Canadian corporation, to
elect to treat such corporation as a domestic corporation for all purposes of subtitle
A of the Code. Among other requirements, such an election may be made only
if the sole purpose for maintaining such
corporation is to comply with Canadian or
Mexican law regulating the title and operation of property.
If an election under section 1504(d) is
in effect with respect to a Canadian or
Mexican corporation, and the relevant
provision in Canadian or Mexican law
regulating the title and operation of property is repealed, it is the view of Treasury
and the IRS that the election under section
1504(d) generally is terminated as of the
effective date of the repeal. However, a
foreign corporation may continue to be
viewed as maintained solely for the purpose of complying with Canadian or
Mexican law for a short period of time
following the repeal of that foreign law if
the taxpayer takes reasonable and expeditious measures to respond to the change in
foreign law and for good reason is unable
to complete such measures by the effective date of the repeal, as would be the
case if the taxpayer is required to obtain
regulatory approval in order to convert
the foreign corporation to a branch of the
U.S. parent and cannot obtain such approval by the effective date of the repeal.
In such a case, the foreign corporation
will continue to be viewed as maintained
solely for the purpose of complying with
Canadian or Mexican law only for so long
as is reasonably necessary to convert to
branch form and only for so long as the
taxpayer persists in its efforts to convert
to branch form during that period. The
IRS may issue guidance identifying
whether and the extent to which this short
period of time exists in appropriate circumstances not specifically addressed by

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this Notice. Following the end of any
such period (or immediately upon the effective date of the repeal of the foreign
law if there is no such period), if the foreign corporation remains in existence, it
is no longer maintained solely for the purpose of complying with the repealed foreign law.
Repeal of Canadian Banking
Legislation
Until recently, Canada prohibited foreign banks from operating in branch form
within Canada, under the Bank Act
(Canada), S.C. 1991, c. 46 (“Original
Act”). Canadian banking operations of a
foreign bank were required to be conducted within a Canadian corporation.
Thus, Canadian banking subsidiaries of
U.S. banks may have qualified for the
election under section 1504(d).
Effective June 28, 1999, the Original Act
was amended to permit foreign banks to
perform certain specified banking functions
in Canada directly through foreign branches
rather than through Canadian subsidiaries
(“Amended Act”). Under the Amended
Act, all Canadian subsidiaries of foreign
banks seeking to convert to a branch operation must obtain the approval of the Minister of Finance and the Office of the Superintendent of Financial Institutions.
In addition, on May 11, 1999, the
Canadian government announced its intention to enact legislation that would
allow an indefinite deferral of the Canadian tax imposed upon the liquidation of a
Canadian banking subsidiary as part of its
conversion to branch form (“Relief Legislation”). Department of Finance Release
99–044 (May 11, 1999). Under the Relief
Legislation, relief will be available only if
the bank complies, on or before December 31, 2000, with paragraphs 1.0(1.1)(b)
and (c) of the draft “Guide to Foreign
Bank Branching” issued by the Office of

the Superintendent of Financial Institutions (“Foreign Branch Guide”). In addition, the Canadian banking subsidiary
must complete its conversion to branch
form on or before the earlier of (i) the day
that is six months after the day that the
Superintendent of Financial Institutions
makes an order in respect of the foreign
bank under subsection 534(1) of the
Amended Act, or (ii) December 31, 2002.
The terms of the proposed Relief Legislation indicate that Canada has determined
that the period described above is a reasonable period for taxpayers to take the
steps necessary to convert to branch form.

applicable Canadian law regulating the
title and operation of property.
The principal author of this notice is
Kenneth D. Allison of the Office of Associate Chief Counsel (International). However, other personnel from the IRS and the
Treasury Department participated in its development. For further information regarding this notice contact Mr. Allison at 202622-3860 (not a toll-free call).

Effect of Repeal of Canadian Banking
Legislation

Notice 2000–8

Except as provided in the following
sentence, a Canadian banking subsidiary
that was, immediately prior to June 28,
1999, maintained solely for the purpose
of complying with the Original Act shall
be considered to be maintained solely for
the purpose of complying with the Original Act until the earlier of the date that is
six months after the day that the Superintendent of Financial Institutions makes an
order in respect of the foreign bank under
subsection 534(1) of the Amended Act, or
December 31, 2002. If, however, the
bank does not comply with paragraphs
1.0(1.1)(b) and (c) of the Foreign Branch
Guide on or before December 31, 2000,
the Canadian banking subsidiary shall be
considered to be maintained solely for the
purpose of complying with the Original
Act only until December 31, 2000.
After the applicable period described in
the preceding paragraph, any Canadian
banking subsidiary remaining in existence
shall be maintained solely for the purpose
of complying with foreign law as to title
and operation of property only if it is
maintained solely for the purpose of complying with the Amended Act or any other

Month

Year

Weighted
Average

January

2000

6.01

January 24, 2000

Weighted Average Interest Rate
Update

Notice 88–73 provides guidelines for
determining the weighted average interest
rate and the resulting permissible range of
interest rates used to calculate current liability for the purpose of the full funding
limitation of § 412(c)(7) of the Internal
Revenue Code as amended by the Omnibus Budget Reconciliation Act of 1987
and as further amended by the Uruguay
Round Agreements Act, Pub. L. 103-465
(GATT).
The average yield on the 30-year Treasury Constant Maturities for December
1999 is 6.35 percent.
The following rates were determined
for the plan years beginning in the month
shown below.
Drafting Information
The principal author of this notice is
Todd Newman of Employee Plans, Tax Exempt and Government Entities Division.
For further information regarding this notice, call the Employee Plans Actuarial hotline, (202) 622-6076 between 2:30 and
3:30 p.m. Eastern time (not a toll-free number). Mr. Newman’s number is (202) 6228458 (also not a toll-free number).

90% to 105%
Permissible
Range

90% to 110%
Permissible
Range

5.41 to 6.31

5.41 to 6.61

420

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Part IV. Items of General Interest
Notice of Proposed Rulemaking
and Notice of Public Hearing
Credit for Increasing Research
Activities
REG–105606–99
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
SUMMARY: This document contains
proposed regulations relating to the computation of the credit for increasing research activities (the research credit) for
members of a controlled group and the allocation of the credit under section 41(f)
of the Internal Revenue Code. These proposed regulations are intended to provide
guidance on the proper method for computing the research credit for members of
a controlled group and the proper method
for allocating the group credit to members
of the group. These proposed regulations
reflect changes to section 41 made by the
Revenue Reconciliation Act of 1989 (the
1989 Act). This document also provides
notice of a public hearing on these regulations.
DATES: Written or electronic comments
must be received no later than April 5,
2000. Outlines of topics to be discussed
at the public hearing scheduled for April
26, 2000 at 10 a.m. must be received by
April 5, 2000.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–105606–99),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (REG–105606–99),
Courier’s Desk, Internal RevenueService,
1111 Constitution Avenue NW., Washington, DC. Alternatively, taxpayers may
submit comments electronically via the
Internet by selecting the “Tax Regs” option of the IRS Home Page, or by submitting comments directly to the IRS Internet
site at:
http://www.irs.gov/prod/taxregs/regslist.h
tml. The public hearing will be held in

2000–4 I.R.B.

room 2615, Internal Revenue Building,
1111 Constitution Avenue, NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Lisa J. Shuman at (202)622-3120
(not a toll-free number); concerning submission of comments, the hearing, and/or
to be placed on the building access list to
attend the hearing, La Nita Van Dyke at
(202)622-7190 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of
Management and Budget for review in accordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information
should be sent to the Office of Management and Budget, Attn: Desk Officer for
the Department of the Treasury, Office of
Information and Regulatory Affairs,
Washington, DC 20503, with copies to
the Internal Revenue Service, Attn: IRS
Reports Clearance Officer, OP:FS:FP,
Washington, DC 20224. Comments on
the collection of information should be received by March 6, 2000.
Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the proper performance of the functions of the IRS, including whether the information will have
practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be enhanced;
How the burden of complying with the
proposed collection of information may
be minimized, including through the application of automated collection techniques or other forms of information technology; and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of services to provide information.

421

The collection of information in this
proposed regulation is contained in the
preamble under the heading “Proposed
Effective Date.“ The information is required by the IRS to ensure that members
of a controlled group filing claims for refund based on a change in method of allocating the research credit to members of
the group do not together claim in excess
of 100% of the credit with respect to prior
taxable years.
Estimated total annual reporting burden: 200 hours.
Estimated average annual burden hours
per respondent: 20 hours.
Estimated number of respondents: 10.
Estimated frequency of responses: On
occasion.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it displays a valid control number assigned by
the Office of Management and Budget.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
The research credit provisions originally
appeared in section 44F of the Internal
Revenue Code of 1954 (the 1954 Code), as
added to the 1954 Code by section 221 of
the Economic Recovery Tax Act of 1981.
Section 471(c) of the Tax Reform Act of
1984 redesignated section 44F as section
30. Section 231 of the Tax Reform Act of
1986 (the 1986 Act) redesignated section
30 as section 41 and substantially modified
the research credit provisions. The 1989
Act substantially revised the computation
of the research credit.
On May 17, 1989, the IRS published in
the Federal Register (54 FR 21203) final
regulations under section 41. The 1989
final regulations generally do not reflect
the amendments to section 41 made by
the 1986 Act, the 1989 Act, and other subsequent legislative revisions to the research credit.
The amendments proposed by this document contain proposed rules relating to

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the computation of the research credit for
members of a controlled group and the allocation of the credit under section 41(f).
These proposed regulations reflect
changes to the research credit rules made
by the 1989 Act and Small Business Job
Protection Act of 1996, which introduced
the alternative incremental research
credit.
Pre-1990 Rules for Computing the
Research Credit for Members of a
Controlled Group and Allocating the
Credit among Members of the Group
Prior to the enactment of the 1989 Act,
the research credit was computed by multiplying the credit rate by the excess of the
taxpayer’s current year qualified research
expenses over the average of the taxpayer’s qualified research expenses for
the preceding three years.
Before amendment by the 1989 Act,
section 41(f)(1) provided rules for computing the research credit for members of
a controlled group (generally a group of
corporations or unincorporated businesses
linked by common ownership of more
than 50 percent). Section 41(f)(1) treated
all members of a controlled group as a
single taxpayer for purposes of computing
the credit and allocated the credit to the
members of the group based on the member’s proportionate share of the increase
in qualified research expenses giving rise
to the credit.
The legislative history to the 1981 Act
indicates that the research credit aggregation rules were enacted to ensure that the
research credit would be allowed only for
actual increases in research expenditures.
The aggregation rules were intended to
prevent artificial increases in research expenditures by shifting expenditures
among commonly controlled or otherwise
related persons. H. Rep. No. 97–201,
1981–3 C.B. (Vol. 2) 364 and Sen. Rep.
97–144, 1981–3 C.B. (Vol. 2) 442.
An example that appears in both
§1.41–8(a)(4) of the 1989 regulations and
the legislative history to the 1981 Act illustrates the computation and allocation
of the research credit under section
41(f)(1) before the 1989 Act amendments
to the research credit computation. In the
example, the allowable group research
credit is allocated among the members experiencing an increase in qualified research expenses over their base period re-

January 24, 2000

search expenses. The member allocation
is based on the ratio that each member’s
increase in its qualified research expenses
over its base period research expenses
bears to the sum of the group’s increases
in qualified research expenses.
Post-1989 Rules for Computing the
Research Credit for Members of a
Controlled Group and Allocating the
Regular Research Credit among
Members of the Group
In the 1989 Act, Congress revised the
computation of the research credit. Congress retained the incremental structure of
the credit but altered the computation to
focus on whether and the extent to which
a taxpayer increases the proportion of its
qualified research expenses relative to its
gross receipts.
Under section 41, as amended in 1989,
the research credit is computed by multiplying the credit rate by the excess of the
taxpayer’s current year qualified research
expenses over a “base amount.” The base
amount is defined in section 41(c) as the
greater of: (1) fifty percent of the taxpayer’s credit year qualified research expenses (the minimum base amount); or,
(2) the taxpayer’s “fixed-base percentage” times the taxpayer’s average annual
gross receipts for the four taxable years
preceding the taxable year for which the
credit is being determined.
In general, a taxpayer’s fixed-base percentage is defined in section 41(c)(3)(A)
as the ratio that the taxpayer’s aggregate
qualified research expenses for its taxable
years beginning after December 31, 1983,
and before January 1, 1989 bear to its aggregate gross receipts for the same period.
Section 41(c)(3)(B) provides rules for
computing the fixed-base percentage for
start-up companies. Section 41(c)(3)(C)
provides that the maximum fixed-base
percentage is 16%.
Section 41(f)(1), as amended by the
1989 Act, continues to provide rules for
computing the research credit for members of a controlled group. As under prior
law, all members of a controlled group are
treated as a single taxpayer for purposes
of computing the credit. However, the allocation rule was amended to eliminate
any reference to an “increase” in qualified
research expenses. Under the amended
allocation rule, the group credit is allocated among the members of the group

422

based on each member’s “proportionate
share of the qualified research expenses
and basic research payments giving rise to
the credit.”
In explaining the 1989 Act revisions to
the research credit, the House Report simply states that the rules relating to the aggregation of related persons and changes
in ownership are the same as under present law with the modification that when
a business changes hands, qualified research expenses and gross receipts for periods prior to the change of ownership are
treated as transferred with the trade or
business which gave rise to those expenditures and receipts for purposes of recomputing a taxpayer’s fixed-base percentage. H. Rep. No. 101-247 at 1202.
The legislative history to the 1989 Act
does not refer to the elimination of the
word “increase” from the allocation rule.
In the light of the statutory changes enacted in 1989, taxpayers have questioned
the proper method for computing the research credit for members of a controlled
group and the proper method for allocating the group credit to members of the
group under the new rules.
The proposed regulations provide that,
for purposes of computing the group
credit, all of the computational rules of
section 41 are applied on an aggregate
basis. This is consistent with the statutory
prescription that the controlled group be
treated as a single taxpayer and is necessary to preclude taxpayers from creating
artificial increases in the credit by shifting
qualified research expenses and gross receipts among commonly controlled or
otherwise related persons.
In proposing rules for the allocation of
the credit, Treasury and the IRS considered, but were not persuaded by, certain
taxpayers’ argument that the elimination
of the word “increase” from the allocation
rule in the statute requires that the credit
be allocated on the basis of the gross
amount of qualified research expenses incurred by the various members of the controlled group. Treasury and the IRS believe that elimination of the word
“increase” was necessitated by the 1989
statutory amendments to the computation
of the research credit, which afford a
credit in certain circumstances even where
the taxpayer (or each member of a controlled group) is decreasing its gross
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(e.g., because the taxpayer’s gross receipts
also are decreasing). However, there is no
indication that the elimination of the word
“increase” was intended to suggest that the
credit be allocated without regard to its incremental nature. To the contrary, the
statutory prescription that the credit be allocated according to each member’s proportionate share of the qualified research
expenses “giving rise to” the credit supports a rule that allocates the credit to
those members whose share of current
year qualified research expenses exceeds
their share of the base amount. Thus, the
proposed regulation provides that the
group research credit is allocated to each
member based on the ratio that the member’s increase in its qualified research expenses over its base amount bears to the
sum of each member’s increase in qualified research expenses over its base
amount. The member’s base amount is
computed by multiplying the group fixedbase percentage by the member’s average
annual gross receipts for the four preceding tax years.
In order to prevent manipulation of the
amount of credit allocated to a consolidated group of corporations that is a
member of a controlled group with other
taxpayers, Treasury and the IRS considered a special rule for allocating the research credit that would treat all members
of a consolidated group as a single taxpayer for purposes of allocating the research credit among members of the controlled group. Treasury and the IRS
request comments on special rules for allocating the research credit among members of a controlled group that contains a
consolidated group of corporations.
Allocation of the Credit for Basic
Research Payments and the Alternative
Incremental Research Credit
The proposed regulations also address
the computation and allocation of the
group credit for basic research payments
(certain amounts paid to qualified organizations for basic research) and for the alternative incremental research credit (an
elective alternative method of computing
the research credit, under which taxpayers
are assigned a lower three-tiered fixed
base percentage, and the credit rate is reduced).
As in the case of the regular credit for
qualified research expenses, the proposed

2000–4 I.R.B.

regulations provide that all computations
with respect to the group credit for basic
research payments and the alternative incremental research group credit are undertaken on an aggregate basis. Similarly,
these group credits are allocated to the
various group members on an incremental
basis.
Proposed Effective Date
The regulations generally are proposed
to be applicable for taxable years ending
on or after the date proposed regulations
are filed with the Federal Register, but are
also proposed to be retroactive in certain
limited circumstances to prevent abuse.
To prevent taxpayers that are members of
a controlled group from together claiming
in excess of 100% of the credit with respect to prior taxable years, the rules for
allocating the group credit would apply to
any taxable year beginning after December 31, 1989, in which, as a result of inconsistent methods of allocation, the
members of a controlled group as a whole
claimed more than 100% of the allowable
group credit. In the case of a group whose
members have different taxable years and
whose members used inconsistent methods of allocation, the members of the
group as a whole shall be deemed to have
claimed more than 100% of the allowable
group credit.
No claim for refund (1) attributable to a
change in method of allocation; (2) pertaining to a taxable year ending before
December 30, 1999; and (3) filed after
December 30, 1999, will be allowed unless the taxpayer submits a statement
identifying all members of the controlled
group for the taxable year at issue. The
statement must contain a declaration
signed by the taxpayer under penalties of
perjury that states: “To the best of my
knowledge and belief, taking into account
prior claims, this amended claim and any
related adjustments, no more than the
total amount of the group credit will be allocated to the members of the controlled
group.”
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also
has been determined that section 553(b)

423

of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to
these regulations. It is hereby certified
that the collection of information contained in these regulations will not have
a significant economic impact on a substantial number of small entities. This
certification is based on the expectation
that few, if any, small entities will file
claims for refund attributable to a
change in method of allocating the research credit among members of its controlled group. Accordingly, a Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration will be given to any written comments (preferably a signed original and
eight (8) copies) or electronic comments
are submitted timely to the IRS. Treasury
and the IRS request comments on the
clarity of the proposed regulations and
how they may be made easier to understand. All comments will be available for
public inspection and copying.
A public hearing has been scheduled
for April 26, 2000 at 10 a.m. in room
2615, Internal Revenue Building, 1111
Constitution Avenue, NW., Washington,
DC. Due to building security procedures,
visitors must enter at the 10th Street entrance, located between Constitution and
Pennsylvania Avenues, NW. In addition,
all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance
area more than 15 minutes before the
hearing starts. For information about
having your name placed on the building
access list to attend the hearing, see the
“FOR FURTHER INFORMATION
CONTACT” section of this preamble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written or electronic comments
and an outline of the topics to be dis-

January 24, 2000

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Page 424

cussed and the time to be devoted to each
topic (preferably a signed original and
eight (8) copies by April 5, 2000). A period of 10 minutes will be allotted to each
person making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal author of these proposed
regulations is Lisa J. Shuman of the Office of the Assistant Chief Counsel
(Passthroughs and Special Industries).
However, personnel from other offices of
the IRS and the Treasury Department participated in their development.
* * * * *
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In §1.41-0, the table of contents
is amended by revising the entries for
§1.41–8(a), (a)(1), (a)(4), and (b) and
adding entries for §1.41–8(a)(5) and
(a)(6) to read as follows:
§1.41–0 Table of contents.
* * * * *
§1.41–8 Aggregation of expenditures.
(a) Controlled group of corporations; trades
or businesses under common control.
(1) In general.
* * * * *
(4) Allocation of credit for basic research

payments.
(5) Allocation of alternative incremental
research credit.
(6) Examples.
(b) For taxable years beginning before
January 1, 1990.
* * * * *
Par. 3. In §1.41–8, paragraphs (a)(1),
(a)(4), (b), and (c)(1) are revised and
paragraphs (a)(5) and (a)(6) are added to
read as follows:
§1.41–8 Aggregation of expenditures.
(a) Controlled group of corporations;
trades or businesses under common control—(1) In general. In determining the
amount of the credit for increasing research activities allowed with respect to a
trade or business that at the end of its taxable year is a member of a controlled
group of corporations or a member of a
group of trades or businesses under common control, all members of the group are
treated as a single taxpayer. Thus, for
purposes of determining the amount of
the credit, all of the rules in section 41, including, for example, the rules in section
41(c)(2) (pertaining to the minimum base
amount), section 41(c)(3)(B) (pertaining
to the fixed-base percentage for start-up
companies), and section 41(c)(3)(C) (pertaining to maximum base amount) are applied only to the aggregate computation
of the base amount. The credit (if any) allowed to any member is determined on
the basis of the ratio that its increase (if
any) in its qualified research expenses
over its base amount bears to the aggregate increases in qualified research expenses over the base amount of all members of the group. For purposes of the
preceding sentence, a member computes
its base amount by multiplying the group
fixed-base percentage by the member’s
average annual gross receipts for the four

preceding tax years.
* * * * *
(4) Allocation of credit for basic research payments. The credit (if any) attributable to basic research payments allowed to a member is determined on the
basis of the ratio that its excess (if any) of
basic research payments over its qualified
organization base period amount bears to
the aggregate excess of basic research
payments over the qualified organization
base period amount of all members in the
group. For purposes of the preceding sentence, a member computes its qualified
organization base period amount using
similar principles to those used in paragraph (a)(1) to determine the member’s
base amount.
(5) Allocation of alternative incremental research credit. If the credit is computed under the alternative incremental
research credit rules, the credit (if any) allowed to the member is determined on the
basis of the ratio that its excess (if any) of
qualified research expenses over 1% of its
average annual gross receipts for the four
taxable years preceding the taxable year
for which the credit is being determined
bears to the aggregate excess of qualified
research expenses over 1% of the average
annual gross receipts of all members of
the group for the four taxable years preceding the taxable year for which the
credit is being determined.
(6) Examples. The following examples
illustrate the provisions of this paragraph
(a):
Example 1. (i) Facts. A controlled group of three
corporations (all of which are calendar-year taxpayers) had qualified research expenses for the credit
year 1999, qualified research expenses for the period
1984 through 1988, gross receipts for the period
1984 through 1988, and average annual gross receipts for the four years preceding the credit year as
follows:

A

B

C

Credit Year Qualified
Research Expenses

$200x

$20x

$110x

$330x

1984-1988 Qualified
Research Expenses

$40x

$10x

$100x

$150x

1984-1988 Gross Receipts

$1,000x

$350x

$150x

$1500x

Average Annual Gross
Receipts for 4 years
preceding Credit Year

$1,200x

$200x

$300x

$1700x

January 24, 2000

424

Total

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(ii) Computation of the group credit. (A) The
group research credit is computed as if the three corporations are one taxpayer. The research credit is
equal to 20 percent of the excess of the group’s aggregate credit year qualified research expenses over
the group’s base amount.
(B) The group’s base amount equals the greater
of fifty percent of the group’s credit year qualified
research expenses (the minimum base amount); or,
the group’s fixed-base percentage times the group’s
average annual gross receipts for the four taxable
years preceding the credit year. The group’s fixed-

Member

base percentage is the ratio that the group’s aggregate qualified research expenses for the taxable
years beginning after December 31, 1983, and before January 1, 1989 bear to its aggregate gross receipts for the same period. Therefore, the group’s
fixed-base percentage is 150x/1500x or 10% and the
group’s base amount is $170x, the greater of 50% of
$330 or 10% of $1,700x.
(C) The group’s research credit is equal to 20 percent of the excess of the group’s aggregate credit
year qualified research expenses over the group’s
base amount. That is 20% of ($330x - $170x) or

$32x.
(iii) Allocation of the group credit. The group research credit of $32x is allocated to the members of
the group based on the ratio that the member’s increase in its qualified research expenses over the
member’s base amount bears to the sum of the member increases in qualified research expenses over
their base amounts. The member’s base amount is
computed by multiplying the group fixed-base percentage of 10% by the member’s average annual
gross receipts for the four preceding tax years. The
$32x credit is allocated as follows:

Credit Year
Qualified
Research
Expenses

Member
Base
Amount

Increase

Ratio

A

$200x

$120x

$80x

80/160

B

$20x

$20x

C

$110x

$30x

Example 2. (i) Facts. The facts are the same as
in Example 1 except that A had no qualified research expenses during the credit year. The fol-

Credit

$16x

0
$80x

80/160

lowing table shows the group’s qualified research
expenses for the credit year, qualified research expenses for the period 1984 through 1988, gross re-

A

B

$16x

ceipts for the period 1984 through 1988, and average annual gross receipts for the four years preceding the credit year:

C

Total

Credit Year Qualified
Research Expenses

0

$20x

$110x

$130x

1984-1988 Qualified
Research Expenses

$40x

$10x

$100x

$150x

1984-1988 Gross Receipts

$1,000x

$350x

$150x

$1500x

Average Annual Gross
Receipts for 4 years
preceding Credit Year

$1,200x

$200x

$300x

$1700x

(ii) Computation of the group credit. Under
these facts, the controlled group’s credit year qualified research expenses are less than the group’s
base amount of $170x, and no credit is allowed to
the group unless the group elects to use the alternative incremental research credit under section
41(c)(4).
If the group elects to use the alternative incre-

Member

Credit
Year
Qualified
Research
Expenses

mental credit under section 41(c)(4), the group is
allowed a credit equal to .0165($25.5x - $17x) +
.022($34x - $25.5x) + .0275($130x - $34x) or
$2.96725x.
(iii) Allocation of the group credit. Assuming
that the group elects to use the alternative incremental research credit under section 41(c)(4), the
group research credit of $2.96725x is allocated to

1 % of Member
Average
Annual Gross
Receipts for
4 Preceding
Tax Years

the members of the group based on the ratio that
the member’s qualified research expenses over one
percent of the member’s average annual gross receipts for the four preceding years bears to the
sum of the member increases in qualified research
expenses over one percent of their average annual
gross receipts for the four preceding years. The
$2.96725x credit is allocated as follows:

Increase

Ratio

Credit

A

$0

$12x

0

0

B

$20x

$2x

$18x

18/125

$.427284x

C

$110x

$3x

$107x

107/125

$2.539966x

2000–4 I.R.B.

425

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Example 3. (i) Facts. A controlled group of three
corporations (all of which are calendar-year taxpayers) had qualified research expenses for the credit

year 1999, qualified research expenses for the period
1984 through 1988, gross receipts for the period
1984 through 1988, and average annual gross re-

ceipts for the four years preceding the credit year as
follows:

A

B

C1

Total

Credit Year Qualified
Research Expenses

$200x

$20x

$50x

$270x

1984-1988 Qualified
Research Expenses

$55x

$15x

0

$70x

1984-1988 Gross Receipts

$1000x

$400x

0

$1400x

Average Annual Gross
Receipts for 4 years
preceding Credit Year

$1200x

$200x

0

$1400x

1C

began business in 1999.

(ii) Computation of the group credit. (A) The
group research credit is computed as if the three corporations are one taxpayer. The research credit is
equal to 20 percent of the excess of the group’s aggregate credit year qualified research expenses over
the group’s base amount.
(B) The group’s base amount equals the greater
of: fifty percent of the group’s credit year qualified
research expenses (the minimum base amount), or,
the group’s fixed-base percentage times the group’s
average annual gross receipts for the four taxable

Member

years preceding the credit year. The group’s fixedbase percentage is the ratio that the group’s aggregate qualified research expenses for the taxable
years beginning after December 31, 1983, and before January 1, 1989 bear to its aggregate gross receipts for the same period. Therefore, the group’s
fixed-base percentage is 70x/1400x or 5% and the
group’s base amount is $135x, the greater of 50% of
$270x or 5% of $1,400x.
(C) The group’s research credit is equal to 20 percent of the excess of the group’s aggregate credit year
qualified research expenses over the group’s base
amount. That is 20% of ($270x - $135x) or $27x.

CreditYear
Qualified
Research
Expenses

Member
Base
Amount

A

$200x

B
C

(iii) Allocation of the group credit. The group research credit of $27x is allocated to the members of
the group based on the ratio that the member’s increase in its qualified research expenses over the
member’s base amount bears to the sum of the member increases in qualified research expenses over
their base amounts. The member’s base amount is
computed by multiplying the group fixed-base percentage of 5% by the member’s average annual
gross receipts for the four preceding tax years. The
$27x credit is allocated as follows:

Increase

Ratio

Credit

$60x

$140x

14/20

$18.9x

$20x

$10x

$10x

1/20

$1.35x

$50x

0

$50x

5/20

$6.75x

Example 4. (i) Facts. The facts are the same as in
Example 3 except that C began business in 1989. A,
B, and C had qualified research expenses for the

credit year 1999, qualified research expenses for the
period 1984 through 1988, gross receipts for the period 1984 through 1988, and average annual gross

receipts for the four years preceding the credit year
as follows:

A

B

Credit Year Qualified
Research Expenses

$200x

$20x

$50x

$270x

1984-1988 Qualified
Research Expenses

$55x

$15x

0

$70x

1984-1988 Gross Receipts

$1,000x

$400x

0

$1,400x

Average Annual Gross
Receipts for 4 years
preceding Credit Year

$1,200x

$200x

$1,000x

$2,400x

January 24, 2000

426

C

Total

2000–4 I.R.B.

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Page 427

(ii) Computation of the group credit. (A) The
group research credit is computed as if the three corporations are one taxpayer. The research credit is
equal to 20 percent of the excess of the group’s aggregate credit year qualified research expenses over
the group’s base amount.
(B) The group’s base amount equals the greater
of: fifty percent of the group’s credit year qualified
research expenses (the minimum base amount), or,
the group’s fixed-base percentage times the group’s
average annual gross receipts for the four taxable
years preceding the credit year. The group’s fixed-

Member

base percentage is the ratio that the group’s aggregate qualified research expenses for the taxable
years beginning after December 31, 1983, and before January 1, 1989 bear to its aggregate gross receipts for the same period. Therefore, the group’s
fixed-base percentage is 70x/1400x or 5% and the
group’s base amount is $135x, the greater of 50% of
$270x or 5% of $2,400x.
(C) The group’s research credit is equal to 20 percent of the excess of the group’s aggregate credit year
qualified research expenses over the group’s base
amount. That is 20% of ($270x- $135x) or $27x.

CreditYear
Qualified
Research
Expenses

Member
Base
Amount

A

$200x

B
C

Change

Ratio

Credit

$60x

$140x

14/15

$25.2x

$20x

$10x

$10x

1/15

$1.8x

$50x

50x

0

0

0

(b) For taxable years beginning before
January 1, 1990. For taxable years beginning before January 1, 1990, see § 1.41-8
in effect prior to December 30, 1999 as
contained in 26 CFR part 1 revised April
1, 1999.
(c) Tax accounting periods used—(1)
In general. The credit allowable to a
member of a controlled group of corporations or of a group of trades or businesses
under common control is that member’s
share of the aggregate credit computed as
of the end of such member’s taxable year.
In computing the aggregate credit in the
case of a group whose members have different taxable years, a member shall generally treat the taxable year of another
member that ends with or within the
credit year of the computing member as
the credit year of that other member. In
computing the aggregate base amount, the
gross receipts taken into account with respect to another member shall include that
other member’s gross receipts for the four
taxable years of that other member preceding the credit year of that other member.
* * * * *
John M. Dalrymple,
Acting Deputy Commissioner
of Internal Revenue.
(Filed by the Office of the Federal Register on December 30, 1999, 2:06 p.m., and published in the
issue of the Federal Register for January 4, 2000, 65
F.R. 258)

2000–4 I.R.B.

(iii) Allocation of the group credit. The group research credit of $27x is allocated to the members of
the group based on the ratio that the member’s increase in its qualified research expenses over the
member’s base amount bears to the sum of the member increases in qualified research expenses over
their base amounts. The member’s base amount is
computed by multiplying the group fixed-base percentage of 5% by the member’s average annual
gross receipts for the four preceding tax years. The
$27x credit is allocated as follows:

Deposits of Excise Tax
Announcement 2000–5
AGENCY: Internal Revenue Service
(IRS), Treasury
ACTION: Advance notice of proposed
rulemaking.
SUMMARY: This document invites
comments from the public on issues that
the IRS may address in proposed regulations relating to the requirements for excise tax returns and deposits. All materials submitted will be available for public
inspection and copying.
DATES: Written and electronic comments
must be submitted by April 6, 2000.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–103827–99),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (REG–103827–99),
Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW.,
Washington, DC. Alternatively, taxpayers
may send submissions electronically via
the Internet by selecting the “Tax Regs”
option on the IRS Home Page, or directly
to the IRS Internet site at
http://www.irs.ustreas.gov/tax_regs/regsli
st.html.

427

FOR FURTHER INFORMATION CONTACT: Concerning submissions, the
Regulations Unit, (202) 622-7180; concerning the proposals, Susan Athy, (202)
622-3130 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
The Excise Tax Procedural Regulations
(26 CFR part 40) set forth the requirements related to filing the Quarterly Federal Excise Tax Return, Form 720, and
making deposits of excise taxes. Certain
provisions of the current regulations are
complicated. The IRS is interested in
simplifying the filing and deposit rules
both as to the timing and the calculation
of the correct amount to deposit. Simplification would reduce recordkeeping burdens and costs for taxpayers, improve
compliance, and facilitate proper administration of the excise taxes and trust
funds. The IRS requests comments on
how the regulations can be simplified;
comments are requested in particular on
the following issues.
Time for Filing Returns
The regulations currently provide that
the Form 720 generally must be filed by the
last day of the first calendar month following the quarter for which it is made. However, in the case of returns related to taxes
imposed by chapter 33 (communications
and air transportation) and section 4681
(ozone-depleting chemicals), the due date
is the last day of the second calendar month

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Page 428

following the quarter for which it is made.
The IRS requests comments on
whether there should be one filing date
for all Form 720 filers, such as 30 days
after the end of the quarter. This would
be a simple rule that would apply equally
to all taxpayers.
Use of Government Depositaries
Background. The regulations currently
provide that excise taxes must be deposited
on a semimonthly basis. Generally, taxes
must be deposited by the 9th day of the
semimonthly period following the semimonthly period for which the deposit is
made (the 9-day rule). There are, however,
exceptions to this rule. Taxes on ozone-depleting chemicals must be deposited by the
end of the second semimonthly period following the semimonthly period for which
the deposit is made (the 30-day rule). In
addition, for taxes imposed by section 4081
(gasoline, diesel fuel, and kerosene), communications taxes, and air transportation
taxes, taxpayers may choose a deposit rule
other than the 9-day rule. For section 4081
taxes, section 518 of the Highway Revenue
Act of 1982 provides that a qualified person may deposit by the 14th day of the
semimonthly period following the semimonthly period for which it is made if the
deposit is made by electronic funds transfer
(the 14-day rule). For communications and
air transportation taxes, if a person computes the amount of tax to be reported and
deposited on the basis of amounts considered as collected, the person may deposit
the taxes considered as collected during a
semimonthly period by the third banking
day after the seventh day of the semimonthly period (the alternative method).
The regulations also provide that the
amount of the deposit for a semimonthly
period must equal the amount of net tax
liability incurred during that period unless
either the look-back quarter safe harbor
rule or the current liability safe harbor
rule applies. In general, the look-back
quarter safe harbor rule is met if the deposits for each semimonthly period in the
quarter are at least 1/6 of the net liability
reported for that tax in the second calendar quarter preceding the current quarter,
and the current liability safe harbor rule is
met if the deposit for each semimonthly
period is at least 95 percent of the net tax
liability for the semimonthly period. Safe
harbor rules apply separately to each class

January 24, 2000

of tax. Each semimonthly deposit must
be timely made at an authorized Government depository. Also, the amount of any
underpayment must be paid by the due
date of the return, without extension. A
failure to meet all the deposit requirements of a safe harbor rule for any semimonthly period eliminates the availability
of that safe harbor for the entire quarter.
As the above description of current regulations illustrates, the deposit rules are quite
complicated, and taxpayers have experienced difficulty in complying with them.
In addition, under existing safe harbor
rules, penalties for failure to deposit may be
imposed for all semimonthly periods in a
quarter if a taxpayer fails to deposit timely
and in the correct amount during any semimonthly period in that quarter.
Request for Comments. With respect to
the deposit rules, the IRS specifically requests comments on the following issues:
1. Whether there should be a single deposit date for all excise taxes, such as 14
days after the end of the semimonthly period. (The IRS believes it would be appropriate to retain the alternative method
allowing communications and air transportation tax collectors to file returns and
make deposits based on amounts billed or
tickets sold.)
2. Whether a taxpayer should have to
deposit at least 95 percent of tax liability incurred for the corresponding semimonthly
period (in lieu of the current requirement of
100 percent with safe harbor rules).
3. Whether the amount required to be
deposited for a quarter should be computed without reduction for the amounts
of any claims made on Schedule C of
Form 720 for that quarter.
Judith C. Dunn,
Associate Chief
Counsel (Domestic).
(Filed by the Office of the Federal Register on January 6, 2000, 8:45 a.m. , and published in the issue of
the Federal Register for January 7, 2000, 65 F.R.
1076)

Adequate Disclosure of Gifts;
Correction
Announcement 2000–6
AGENCY: Internal Revenue Service
(IRS), Treasury.

428

ACTION: Correction to final regulations.
SUMMARY: This document contains
corrections to final regulations (T.D.
8845, 1999–51 I.R.B. 684) which were
published in the Federal Register on Friday, December 3, 1999, 64 FR 67767, relating to the valuation of priorgifts in determining estate and gift tax liability, and
the period of limitations for assessing
andcollecting gift tax.
DATES: This correction is effective December 3, 1999.
FOR FURTHER INFORMATION CONTACT: William L. Blodgett, (202) 6223090, (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations that are subject to
these corrections are under section 6501
of the Internal Revenue Code.
Need for Correction
As published, final regulations (TD
8845) contain errors that may prove to be
misleadingand are in need of clarification.
Correction of Publication
Accordingly, the publication of the
final regulations (TD 8845), which were
the subject of FR Doc. 99–30944, is corrected as follows:
§301.6501(c)–1 [Corrected]
1. On page 67772, column 3,
§301.6501(c)–1(f)(5), line 9 from the top of
the column, thelanguage “transfer will not
be subject to inclusion” is corrected to read
“transfer will be subject to inclusion”.
2. On page 67772, column 3,
§301.6501(c)–1(f)(5), line 11 from the
top of the column, the language “purposes. On the other hand, if the” is corrected to read “purposes only to the extent
that a completed gift would be so included. On the other hand, if the”.
Cynthia E. Grigsby,
Chief, Regulations Unit
Assistant Chief Counsel (Corporate).
(Filed by the Office of the Federal Register on January 6, 2000, 8:45 a.m., and
published in the issue of the Federal Register for January 7, 2000, 65 F.R. 1059)

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Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior published position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confusion. It is not used where a position in a
prior ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously
published ruling and points out an essential difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-

plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the substance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published ruling is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a period of time in separate rulings. If the

new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously published ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be published that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.

Abbreviations

E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.

PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

The following abbreviations in current use and formerly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.

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Numerical Finding List1
Bulletins 2000–1 through 2000–3
Announcements:
2000–1, 2000–2 I.R.B. 294
2000–2, 2000–2 I.R.B. 295
2000–3, 2000–2 I.R.B. 296
2000–4, 2000–3 I.R.B. 317
Notices:
2000–1, 2000–2 I.R.B. 288
2000–4, 2000–3 I.R.B. 313
2000–5, 2000–3 I.R.B. 314
2000–6, 2000–3 I.R.B. 315
Proposed Regulations:
REG–101492–98, 2000–3 I.R.B. 326
REG–106012–98, 2000–2 I.R.B. 290
REG–116704–99, 2000–3 I.R.B. 325
Revenue Procedures:
2000–1, 2000–1 I.R.B. 4
2000–2, 2000–1 I.R.B. 73
2000–3, 2000–1 I.R.B. 103
2000–4, 2000–1 I.R.B. 115
2000–5, 2000–1 I.R.B. 158
2000–6, 2000–1 I.R.B. 187
2000–7, 2000–1 I.R.B. 227
2000–8, 2000–1 I.R.B. 230
2000–9, 2000–2 I.R.B. 280
2000–10, 2000–2 I.R.B. 287
2000–11, 2000–3 I.R.B. 309
Revenue Rulings:
2000–1, 2000–2 I.R.B. 250
2000–2, 2000–3 I.R.B. 305
2000–3, 2000–3 I.R.B. 297
Treasury Decisions:
8849, 2000–2 I.R.B. 245
8850, 2000–2 I.R.B. 265
8851, 2000–2 I.R.B. 275
8852, 2000–2 I.R.B. 253
8854, 2000–3 I.R.B. 306
8856, 2000–3 I.R.B. 298

1

A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1999–27 through
1999–52 is in Internal Revenue Bulletin 2000–1,
dated January 3, 2000.

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Finding List of Current Action on
Previously Published Items1

8804
Modified by
T.D. 8856, 2000–3, I.R.B. 298

Bulletins 2000–1 through 2000–3
Notices:
97–19
Modified by
Rev. Proc. 2000–1, 2000–1 I.R.B. 4
Revenue Procedures:
92–13
Modified, amplified, and superseded by
Rev. Proc. 2000–11, 2000–3 I.R.B. 309
92–13A
Modified, amplified, and superseded by
Rev. Proc. 2000–11, 2000–3 I.R.B. 309
94–12
Modified, amplified, and superseded by
Rev. Proc. 2000–11, 2000–3 I.R.B. 309
96–13
Modified by
Rev. Proc. 2000–1, 2000–1 I.R.B. 4
98–64
Superseded by
Rev. Proc. 2000–9, 2000–2 I.R.B. 280
99–1
Superseded by
Rev. Proc. 2000–1, 2000–1 I.R.B. 4
99–2
Superseded by
Rev. Proc. 2000–2, 2000–1 I.R.B. 73
99–3
Superseded by
Rev. Proc. 2000–3, 2000–1 I.R.B. 103
99–4
Superseded by
Rev. Proc. 2000–4, 2000–1 I.R.B. 115
99–5
Superseded by
Rev. Proc. 2000–5, 2000–1 I.R.B. 158
99–6
Superseded by
Rev. Proc. 2000–6, 2000–1 I.R.B. 187
99–7
Superseded by
Rev. Proc. 2000–7, 2000–1 I.R.B. 227
99–8
Superseded by
Rev. Proc. 2000–8, 2000–1 I.R.B. 230
99–49
Modified and amplified by
Notice 2000–4, 2000–3 I.R.B. 313
99–51
Superseded by
Rev. Proc. 2000–3, 2000–1 I.R.B. 103
Treasury Decisions:
8734
Modified by
T.D. 8856, 2000–3, I.R.B. 298

1 A cumulative list of previously published items in
Internal Revenue Bulletins 1999–27 through
1999–52 is in Internal Revenue Bulletin 2000–1,
dated January 3, 2000.

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