IRS UPDATES NO-RULE LIST.

Rev. Proc. 95-3

SECTION 1. PURPOSE AND NATURE Of CHANGES

.01 The purpose of this revenue procedure is to update Rev. Proc. 94-3, 1994-1 C.B. 447, as amplified and modified by subsequent revenue procedures, by providing a revised list of those areas of the Internal Revenue Code under the jurisdiction of the Associate Chief Counsel (Domestic) and the Associate Chief Counsel (Employee Benefits and Exempt Organizations) relating to issues on which the Internal Revenue Service will not issue advance letter rulings or determination letters. For a list of areas under the jurisdiction of the Associate Chief Counsel (International) relating to international issues on which the Service will not issue advance letter rulings or determination letters, see Rev. Proc. 95-7, this Bulletin. For a list of areas under the jurisdiction of the Assistant Commissioner (Employee Plans and Exempt Organizations) relating to issues, plans or plan amendments on which the Service will not issue letter rulings and determination letters, see, respectively, section 8 of Rev. Proc. 95-4, this Bulletin, and section 3.02 of Rev. Proc. 95-6, this Bulletin.

When applicable, the Revenue Reconciliation Act of 1993 will be referred to as "RRA 1993," the Revenue Reconciliation Act of 1990 will be referred to as "RRA 1990," the Revenue Reconciliation Act of 1989 will be referred to as "RRA 1989," the Technical and Miscellaneous Revenue Act of 1988 will be referred to as "TAMRA," and the Tax Reform Act of 1986 will be referred to as "TRA 1986."

.02 Changes

(1) Old sections 3.01(21), 3.01(23), 4.01(22), 4.01(24), 4.01(26), 4.01(30), and 5.12 have been deleted or modified so as to eliminate from this no-rule revenue procedure certain areas that deal with prior law.

(2) Old section 3.01(15), dealing with section 274, has been updated to reference Rev. Proc. 94-77, 1994-52 I.R.B. 31.

(3) Old section 3.01(35) (now numbered 3.01(33)), dealing with section 641, has been revised to reflect the Service's unwillingness to rule as to whether the period of administration or settlement of a trust (other than a trust described in section 664) is reasonable or unduly prolonged.

(4) New section 3.01(35), dealing with section 664, has been added to reflect she Service's unwillingness to rule as to whether the settlement of a charitable remainder trust upon the termination of the noncharitable interest is made within a reasonable period of time.

(5) New section 4.02(5), dealing with situations where a taxpayer or related party is domiciled or organized in certain foreign jurisdictions, has been added to reflect the fact the Service is ordinarily unwilling to rule where the foreign jurisdiction lacks an effective mechanism through which the Service can obtain the information needed for civil tax examinations and criminal tax investigations with regard to one or more of the tax issues involved in the ruling request. In such a situation, however, the Service may rule where the taxpayer or related party enters into appropriate consents and waivers.

(6) New section 5.15, dealing with section 368, has been added to the under study no-rule area to indicate that the Service will not issue advance rulings under section 368 or other provisions of the Code with respect to a transaction in which one corporation owns stock in a second corporation, the first corporation is not an "80- percent distributee" of the second corporation under section 337(c), and the two corporations are combined. See Rev. Proc. 94-76, 1994-52 I.R.B. 30.

(7) Old section 5.24, dealing with section 7701, has been moved from section 5 (Areas Under Extensive Study) to section 3.01(46) (Areas in which Rulings or Determination Letters Will Not Be Issued).

(8) Old section 6.01, dealing with section 442, has been revised to include the modification of Rev. Proc. 92-13 by Rev. Proc. 94-12, 1994-1 C.B. 565, and the modification of Rev. Proc. 87-32 by Rev. Proc. 92-85, 1992-2 C.B. 490.

(9) Old section 6.02, dealing with section 446, has been revised to include method of accounting changes for (i) certain taxpayers changing their method of accounting for costs subject to section 263A, and (ii) certain taxpayers changing their method of accounting to comply with regulations dealing with original issue discount (OID) and other related matters or otherwise seeking changes related to OID. See Rev. Proc. 94-49, 1994-30 I.R.B 31, Rev. Proc. 94-30, 1994-1 C.B. 621, Rev. Proc. 94-29 1994-1 C.B. 616, and Rev. Proc. 94-28, 1994-1 C.B. 614. Also, this section has been updated by deleting references to Rev. Proc. 92-97, 1992-2 C.B. 510 and Rev. Proc. 92-79, 1992-2 C.B. 457.

(10) Old section 6.03, dealing with section 461, has been revised to include the amplification of Rev. Proc. 92-28 by Rev. Proc. 94-32, 1994-1 C.B. 627.

(11) New section 6.04, dealing with section 1362, has been added to reflect the provision of automatic inadvertent termination relief by Rev. Proc. 94-23, 1994-1 C.B. 609.

SECTION 2. BACKGROUND AND SCOPE Of APPLICATION

.01 Background

Whenever appropriate in the interest of sound tax administration, it is the policy of the Service to answer inquiries of individuals and organizations regarding their status for tax purposes and the tax effects of their acts or transactions, prior to the filing of returns or reports that are required by the revenue laws.

There are, however, certain areas in which, because of the inherently factual nature of the problems involved, or for other reasons, the Service will not issue advance rulings or determination letters. These areas are set forth in four sections of this revenue procedure. Section 3 reflects those areas in which advance rulings and determinations will not be issued. Section 4 sets forth those areas in which they will not ordinarily be issued. "Not ordinarily" connotes that unique and compelling reasons must be demonstrated to justify the issuance of a ruling or determination letter. Those sections reflect a number of specific questions and problems as well as general areas. Section 5 lists specific areas for which the Service is temporarily not issuing advance rulings and determinations because those matters are under extensive study. Finally, section 6 of this revenue procedure lists specific areas where the Service will not ordinarily issue advance rulings because the Service has provided automatic approval procedures for these matters.

See Rev. Proc. 95-1, page 9, this Bulletin, particularly section 7 captioned "Under What Circumstances Does the Service Have Discretion to Issue Letter Rulings and Determination Letters?" for general instructions and other situations in which the Service will not or ordinarily will not issue letter rulings or determination letters.

With respect to the items listed, revenue rulings or revenue procedures may be published in the Internal Revenue Bulletin from time to time to provide general guidelines regarding the position of the Service.

Additions or deletions to this revenue procedure as well as restatements of items listed will be made by modification of this revenue procedure. Changes will be published as they occur throughout the year and will be incorporated annually in a new revenue procedure published as the third revenue procedure of the year. These lists should not be considered all-inclusive. Decisions not to rule on individual cases (as contrasted with those that present significant pattern issues) are not reported in this revenue procedure and will not be added to subsequent revisions.

.02 Scope of Application

This revenue procedure does not preclude the submission of requests for technical advice to the National Office from the Office of a District Director of the Internal Revenue or a Chief, Appeals Office.

SECTION 3. AREAS IN WHICH RULINGS OR DETERMINATION LETTERS WILL NOT BE ISSUED

.01 Specific questions and problems.

(1) Section 79. -- Group-Term Life Insurance Purchased for Employees. -- Whether a group insurance plan for 10 or more employees qualifies as group-term insurance, if the amount of insurance is not computed under a formula that would meet the requirements of section 1.79-1(c)(2)(ii) of the Income Tax Regulations if the group consisted of fewer than 10 employees.

(2) Section 83. -- Property Transferred in Connection with Performance of Services. -- Whether a restriction constitutes a substantial risk of forfeiture, if the employee is a controlling shareholder. Also, whether a transfer has occurred, if the amount paid for the property involves a nonrecourse obligation.

(3) Section 105(h). -- Amount Paid to Highly Compensated Individuals Under Discriminatory Self-Insured Medical Expense Reimbursement Plan. Whether, following a determination that a self- insured medical expense reimbursement plan is discriminatory, that plan had previously made reasonable efforts to comply with tax anti- discrimination rules.

(4) Section 117. -- Qualified Scholarships. Whether an employer- related scholarship or fellowship grant is excludible from the employee's gross income, if there is no intermediary private foundation distributing the grants, as there was in Rev. Proc. 76-47, 1976-2 C.B. 670.

(5) Section 119. -- Meals or Lodging Furnished for the Convenience of the Employer. -- Whether the value of meals or lodging is excludible from gross income by an employee who is a controlling shareholder of the employer.

(6) Sections 121 and 1034. -- One-Time Exclusion of Gain from Sale of Principal Residence by Individual Who Has Attained Age 55; Rollover of Gain on Sale of Principal Residence. -- Whether property qualifies as the taxpayer's principal residence.

(7) Section 125. -- Cafeteria Plans. -- Whether amounts used to provide group-term life insurance under section 79, accident and health benefits under sections 105 and 106, and dependent care assistance programs under section 129 are includible in the gross income of participants and considered "wages" for purposes of sections 3401, 3121, and 3306 when the benefits are offered through a cafeteria plan.

(8) Section 162. -- Trade or Business Expenses. -- Whether compensation is reasonable in amount.

(9) Section 163. -- Interest. -- The income tax consequences of transactions involving "shared appreciation mortgage" (SAM) loans in which a taxpayer, borrowing money to purchase real property, pays a fixed rate of interest on the mortgage loan below the prevailing market rate and will also pay the lender a percentage of the appreciation in value of the real property upon termination of the mortgage. This applies to all SAM arrangements where the loan proceeds are used for commercial or business activities, or where used to finance a personal residence, if the facts are not similar to those described in Rev. Rul. 83-51, 1983-1 C.B. 48. (Also sections 61, 451, 461, 856, 1001, and 7701.)

(10) Section 170. -- Charitable, Etc., Contributions and Gifts. -- Whether a taxpayer who advances funds to a charitable organization and receives therefor a promissory note may deduct as contributions, in one taxable year or in each of several years, amounts forgiven by the taxpayer in each of several years by endorsement on the note.

(11) Section 213. -- Medical, Dental, Etc., Expenses. -- Whether a capital expenditure for an item that is ordinarily used for personal, living, or family purposes, such as a swimming pool, has as its primary purpose the medical care of the taxpayer or the taxpayer's spouse or dependent, or is related directly to such medical care.

(12) Section 264(b). -- Certain Amounts Paid in Connection with Insurance Contracts. -- Whether "substantially all" the premiums of a contract of insurance are paid within a period of 4 years from the date on which the contract is purchased. Also, whether an amount deposited is in payment of a "substantial number" of future premiums on such a contract.

(13) Section 264(c)(1). -- Certain Amounts Paid in Connection with Insurance Contracts. -- Whether section 264(c)(1) applies.

(14) Section 269. -- Acquisitions Made to Evade or Avoid Income Tax. -- Whether an acquisition is within the meaning of section 269.

(15) Section 274. -- Disallowance of Certain Entertainment, Etc., Expenses. -- Whether a taxpayer who is traveling away from home on business may, in lieu of substantiating the actual cost of meals, deduct a fixed per-day amount for meal expenses that differs from the amount prescribed in Rev. Proc. 89-67, 1989-2 C.B. 795 (prior to January 1, 1991), in Rev. Proc. 90-60, 1990-2 C.B. 651 (after December 31, 1990, and prior to March 1, 1992), in Rev. Proc. 92-17, 1992-1 C.B. 679 (on or after March 1, 1992, and prior to March 12, 1993), in Rev. Proc. 93-21, 1993-1 C.B. 529 (on or after March 12, 1993, and prior to January 1, 1994), in Rev. Proc. 93-50, 1993-2 C.B. 586 (on or after January 1, 1994, and prior to January 1, 1995), or in Rev. Proc. 94-77 1994-52 I.R.B. 31 (on or after January 1, 1995).

(16) Section 302. -- Distributions in Redemption of Stock. -- Whether section 302(b) applies when the consideration given in redemption by a corporation consists entirely or partly of its notes payable, and the shareholder's stock is held in escrow or as security for payment of the notes with the possibility that the stock may or will be returned to the shareholder in the future, upon the happening of specific defaults by the corporation.

(17) Section 302. -- Distributions in Redemption of Stock. -- Whether section 302(b) applies when the consideration given in redemption by a corporation in exchange for a shareholder's stock consists entirely or partly of the corporation's promise to pay an amount based on, or contingent on, future earnings of the corporation, when the promise to pay is contingent on working capital being maintained at a certain level, or any other similar contingency.

(18) Section 302. -- Distributions in Redemption of Stock. -- Whether section 302(b) applies to a redemption of stock, if after the redemption the distributing corporation uses property that is owned by the shareholder from whom the stock is redeemed and the payments by the corporation for the use of the property are dependent upon the corporation's future earnings or are subordinate to the claims of the corporation's general creditors. Payments for the use of property will not be considered to be dependent upon future earnings merely because they are based on a fixed percentage of receipts or sales.

(19) Section 302. -- Distributions in Redemption of Stock. -- Whether the acquisition or disposition of stock described in section 302(c)(2)(B) has, or does not have, as one of its principal purposes the avoidance of federal income taxes within the meaning of that section, unless the facts and circumstances are materially identical to those set forth in Rev. Rul. 85-19, 1985-1 C.B. 94, Rev. Rul. 79-67, 1979-1 C.B. 128, Rev. Rul. 77-293, 1977-2 C.B. 91, Rev. Rul. 57-387, 1957-2 C.B. 225, Rev. Rul. 56-584, 1956-2 C.B. 179, or Rev. Rul. 56-556, 1956-2 C.B. 177.

(20) Section 302(b)(4) and (e). -- Redemption from Noncorporate Shareholder in Partial Liquidation; Partial Liquidation Defined. -- The amount of working capital attributable to a business or portion of a business terminated that may be distributed in partial liquidation.

(21) Section 312. -- Effect on Earnings and Profits. -- The determination of the amount of earnings and profits of a corporation.

(22) Section 351. -- Transfer to Corporation Controlled by Transferor. -- Whether section 351 applies to an exchange of stock for stock in the formation of a holding company, and whether the taxpayer is subject to the consequences of qualification under that section (such as nonrecognition and basis consequences) that are adequately addressed by a statute, regulation, decision of the Supreme Court, tax treaty, revenue ruling, revenue procedure, notice, or other authority published in the Internal Revenue Bulletin.

For purposes of this provision, if such an exchange qualifies under both section 351 and another corporate restructuring provision and the other provision is not covered by this revenue procedure, the Service will treat any request for a qualification ruling under the other provision as a request for a qualification ruling under section 351. A taxpayer or the taxpayer's representative (as the Service deems appropriate) seeking a qualification ruling for such an exchange under any such other provision must, accordingly, state to the best of knowledge and belief that the exchange does not qualify under section 351.

The Service will not rule on the qualification of an exchange of stock under section 351, even if it is an integral part of a larger transaction that involves other issues upon which the Service will rule and it is impossible to determine the tax consequences of the larger transaction without making a determination with regard to the exchange of stock. However, in such event, the Service will rule on the tax consequences of the larger transaction, provided the taxpayer or the taxpayer's representative (as the Service deems appropriate) states to the best of knowledge and belief that the exchange will (or will not) qualify under section 351. If the Service issues a ruling on the larger transaction, the ruling will state that no opinion is expressed as to whether or not the exchange qualifies under section 351.

SUBISSUES: Additionally, the Service will have the discretion to rule on significant subissues that must be resolved to determine whether a transaction that is in this no-rule area qualifies under section 351. However, the Service will only rule on these subissues if in the view of the Service they are significant and not c1ear1y and adequately addressed by a statute, regulation, decision of the Supreme Court, tax treaty, revenue ruling, revenue procedure, notice, or other authority published in the Internal Revenue Bulletin.

To obtain a ruling on a subissue, the taxpayer must explain the significance of the subissue, set forth the authorities most closely related to the subissue, and explain why the subissue is not resolved by the authorities. The Service will require the taxpayer or the taxpayer's representative (as the Service deems appropriate) to state to the best of know1edge and belief that the transaction will (or will not) qualify under section 351 if the Service rules as the taxpayer proposes on the subissue.

A taxpayer may seek a presubmission conference to determine whether a ruling on the subissue can be obtained under this section. See section 10.14 of Rev. Proc. 95-1. If the Service issues a ruling on a subissue, the ruling will state that no opinion is expressed as to whether the transaction in question qualifies under section 351.

COLLATERAL ISSUES: Although the Service will not rule on the consequences of qualification of an exchange of stock for stock in the formation of a holding company under section 351 if the consequences are adequately addressed by a statute, regulation, decision of the Supreme Court, tax treaty, revenue ruling, revenue procedure, notice, or other authority published in the Internal Revenue Bulletin, it will rule where the consequences of qualification are not adequately addressed by these authorities. To obtain a ruling on a collateral issue, the taxpayer or the tax payer's representative (as the Service deems appropriate) must state to the best of knowledge and belief that the exchange qualifies under section 351, set forth the authorities most closely related to the collateral issue, and explain why the collateral issue is not resolved by these authorities. If the Service issues a ruling on a collateral issue, the ruling will state that no opinion is expressed as to whether the exchange in question qualifies under section 351.

The Service will also continue to rule on issues that arise in connection with an exchange of stock for stock in the formation of a holding company but do not depend upon or affect qualification under section 351.

(23) Section 355. -- Distribution of Stock and Securities of a Controlled Corporation. -- The determination of whether the corporate business purpose requirement of section 1.355-2(b) is satisfied in the following situations:

(i) If the reduction of non-Federal taxes is substantially coextensive with the reduction of federal taxes.

(ii) If a transaction has the potential of avoiding federal taxes but has another corporate business purpose, whether the non- avoidance purpose is the "substantial" motivation for the transaction.

(iii) If the stated purpose of the transaction is to reduce foreign taxes.

(24) Section 368(a)(1)(A). -- Definitions Relating to Corporate Reorganizations. -- Whether a transaction constitutes a corporate reorganization within the meaning of section 368(a)(1)(A), including a transaction that qualifies under section 368(a)(1)(A) by reason of section 368(a)(2)(D) or section 368(a)(2)(E), and whether the taxpayer is subject to the consequences of qualification under that section (such as nonrecognition and basis consequences) that are adequately addressed by a statute, regulation, decision of the Supreme Court, tax treaty, revenue ruling, revenue procedure, notice, or other authority published in the Internal Revenue Bulletin.

For purposes of this provision, if a transaction qualifies under both section 368(a)(1)(A) and another corporate restructuring provision and the other provision is not covered by this revenue procedure, the Service will treat any request for a qualification ruling under the other provision as a request for a qualification ruling under section 368(a)(1)(A). A taxpayer or the taxpayer's representative (as the Service deems appropriate) seeking a qualification ruling under any such other provision must, accordingly, state to the best of knowledge and belief that the transaction does not qualify under section 368(a)(1)(A). The Service will continue to rule on transactions that qualify under section 368(a)(1)(G), even if they are also defined in section 368(a)(1)(A).

The Service will not rule on the qualification of a reorganization under section 368(a)(1)(A), even if it is an integral part of a larger transaction that involves other issues upon which the Service will rule and it is impossible to determine the tax consequences of the larger transaction without determining the tax consequences of the reorganization. However, in such event, the Service will rule on the tax consequences of the larger transaction, provided the taxpayer or the taxpayer's representative (as the Service deems appropriate) states to the best of knowledge and belief that the reorganization will (or will not) qualify under section 368(a)(1)(A). If the Service issues a ruling on the larger transaction, the ruling will state that no opinion is expressed as to whether or not the reorganization qualifies under section 368(a)(1)(A). For example, the Service will not rule on whether a transaction constitutes a corporate reorganization within the meaning of section 368(a)(1)(A), even if the larger transaction also involves the issue of whether a prior distribution of stock in a subsidiary containing assets unwanted by the acquiring corporation qualifies under section 355. See Rev. Rul. 78-251, 1978-1 C.B. 89. However, in such event, if the taxpayer or the taxpayer's representative (as the Service deems appropriate) states to the best of knowledge and belief that the merger qualifies under section 368(a)(1)(A), the Service will rule as to whether the prior stock distribution qualifies under section 355. Such ruling will state that no opinion is expressed as to whether or not the reorganization qualifies under section 368(a)(1)(A).

SUBISSUES: Additionally, the Service will have the discretion to rule on significant subissues that must be resolved to determine whether the transaction qualifies under section 368(a)(1)(A) (including transactions qualifying by reason of section 368(a)(2)(D) or section 368(a)(2)(E)). However, the Service will only rule on such subissues if in the view of the Service they are significant and not clearly and adequately addressed by a statute, regulation, decision of the Supreme Court, tax treaty, revenue ruling, revenue procedure, notice, or other authority published in the Internal Revenue Bulletin. To obtain a ruling on such a subissue, the taxpayer must explain the significance of the subissue, set forth the authorities most closely related to the subissue, and explain why the subissue is not resolved by these authorities. The taxpayer or the taxpayer's representative (as the Service deems appropriate) will also be required to state to the best of knowledge and belief that the transaction will (or will not) qualify under section 368(a)(1)(A), if the Service rules as the taxpayer proposes on the subissue.

A taxpayer may seek a presubmission conference to determine whether a ruling on the subissue can be obtained under this section. See section 10.14, Rev. Proc. 95-1. If the Service issues a ruling on a subissue, the ruling will state that no opinion is expressed as to whether the transaction in question qualifies under section 368(a)(1)(A).

COLLATERAL ISSUES: Although the Service will not rule on the consequences of qualification as a reorganization under section 368(a)(1)(A) if the consequences are adequately addressed by a statute, regulation, decision of the Supreme Court, tax treaty, revenue ruling, revenue procedure, notice, or other authority published in the Internal Revenue Bulletin, it will rule where the consequences of qualification are not adequately addressed by these authorities. For example, the Service will issue a section 381(c)(4) ruling in connection with a section 368(a)(1)(A) reorganization. To obtain a ruling on a co1lateral issue, the taxpayer or the taxpayer's representative (as the Service deems appropriate) must state to the best of knowledge and belief that the transaction qualifies under section 368(a)(1)(A), set forth the authorities most closely related to the collateral issue, and explain why the collateral issue is not resolved by these authorities. If the Service issues a ruling on a collateral issue, the ruling will state that no opinion is expressed as to whether the transaction in question qualifies under section 368(a)(1)(A).

The Service will also continue to rule on issues that arise in connection with a transaction under section 368(a)(1)(A) but do not depend upon or affect qualification under section 368(a)(1)(A).

(25) Section 368(a)(1)(B). -- Definitions Relating to Corporate Reorganizations. -- Whether the acquisition of stock in the formation of a holding company constitutes a corporate reorganization within the meaning of section 368(a)(1)(B), and whether the taxpayer is subject to the consequence of qualification under that section (such as nonrecognition and basis consequences) that are adequately addressed by a statute, regulation, decision of the Supreme Court, tax treaty, revenue ruling, revenue procedure, notice, or other authority published in the Internal Revenue Bulletin.

For purposes of this provision, if such an acquisition of stock qualifies under both section 368(a)(1)(B) and another corporate restructuring provision, and the other provision is not covered by this revenue procedure, the Service will treat any request for a qualification ruling under the other provision as a request for a qualification ruling under section 368(a)(1)(B). A taxpayer or the taxpayer's representative (as the Service deems appropriate) seeking a qualification ruling for such an acquisition under any such other provision must, accordingly, state to the best of knowledge and belief that the acquisition does not qualify under section 368(a)(1)(B).

The Service will not rule on the qualification of an acquisition of stock under section 368(a)(1)(B), even if it is an integral part of a larger transaction that involves other issues upon which the Service will rule and it is impossible to determine the tax consequences of the larger transaction without determining the tax consequences of the acquisition. However, in such event, the Service will rule on the tax consequences of the larger transaction, provided the taxpayer or the taxpayer's representative (as the Service deems appropriate) states to the best of knowledge and belief that the acquisition will (or will not) qualify under section 368(a)(1)(B). If the Service issues a ruling on the larger transaction, the ruling will state that no opinion is expressed as to whether or not the acquisition qualifies under section 368(a)(1)(B).

SUBISSUES: Additionally, the Service will have the discretion to rule on significant subissues that must be resolved to determine whether a transaction that is in this no-rule area qualifies under section 368(a)(1)((B). However, the Service will only rule on these subissues if in the view of the Service they are significant and not clearly and adequately addressed by a statute, regulation, decision of the Supreme Court, tax treaty, revenue ruling, revenue procedure, notice, or other authority published in the Internal Revenue Bulletin. To obtain a ruling on a subissue, the taxpayer must explain the significance of the subissue, set forth the authorities most closely related to the subissue, and explain why the subissue is not resolved by these authorities. The Service will require the taxpayer or the taxpayer's representative (as the Service deems appropriate) to state to the best of knowledge and belief that the acquisition will (or will not) qualify under section 368(a)(1)(B), if the Service rules as the taxpayer proposes on the subissue.

A taxpayer may seek a presubmission conference to determine whether a ruling on the subissue can be obtained under this section. See section 10.14, Rev. Proc. 95-1. If the Service issues a ruling on a subissue, the ruling will state that no opinion is expressed on whether the acquisition in question qualifies under section 368(a)(1)(B).

COLLATERAL ISSUES: Although the Service will not rule on the consequence of qualification of an acquisition of stock in the formation of a holding company under section 368(a)(1)(B) if the consequences are adequately addressed by a statute, regulation, decision of the Supreme Court, tax treaty, revenue ruling, revenue procedure, notice, or other authority published in the Internal Revenue Bulletin, it will rule where the consequences of qualification are not adequately addressed by these authorities. To obtain a ruling on a collateral issue, the taxpayer or the taxpayer's representative (as the Service deems appropriate) must state to the best of knowledge and belief that the acquisition qualifies under section 368(a)(1)(B), set forth the authorities most closely related to the collateral issue, and explain why the collateral issue is not resolved by these authorities. If the Service issues a ruling on a collateral issue, the ruling will state that no opinion is expressed as to whether the acquisition in question qualifies under section 368(a)(1)(B).

The Service will also continue to rule on issues that arise in connection with an acquisition of stock in the formation of a holding company but do not depend upon or affect qualification under section 368(a)(1)(B).

(26) Section 368(a)(1)(B). -- Definitions Relating to Corporate Reorganizations. -- The acceptability of an estimation procedure or the acceptability of a specific sampling procedure to determine the basis of stock acquired by an acquiring corporation in a reorganization described in section 368(a)(1)(B).

(27) Section 368(a)(1)(E). -- Definitions Relating to Corporate Reorganizations. -- Whether a transaction constitutes a corporate recapitalization within the meaning of section 368(a)(1)(E) (or a transaction that also qualifies under section 1036) when either (i) the transaction involves a closely held corporation or (ii) the issues involved are substantially similar to those described in the following revenue rulings:

Rev. Rul. 82-34, 1982-1 C.B. 59 (continuity of business enterprise);

Rev. Rul. 77-479, 1977-2 C.B. 119 (continuity of shareholder interest);

Rev. Rul. 77-238, 1977-2 C.B. 115 (conversion of shares of one class of stock into shares of another class, as permitted by certificate of incorporation);

Rev. Rul. 74-269, 1974-1 C.B. 87 (major shareholder's exchange of common stock for preferred stock);

Rev. Rul. 56-654, 1956-2 C.B. 216 (corporate charter amended to provide preferred stock with increased redemption and liquidation value, where common and preferred stock held pro rata);

Rev. Rul. 55-112, 1955-1 C.B. 344 (common stock exchanged for preferred stock); and

Rev. Rul. 54-482, 1954-2 C.B. 148 (old common stock exchanged for new common stock).

The above no-ruling area does not apply, however, to any corporate recapitalization that is an integral part of a larger transaction, if it is impossible to determine the tax consequences of the larger transaction without making a determination with regard to the recapitalization.

(28) Section 368(a)(1)(F). -- Definitions Relating to Corporate Reorganizations. -- Whether a transaction constitutes a reorganization within the meaning of section 368(a)(1)(F), and whether the taxpayer is subject to the consequences of qualification under that section (such as nonrecognition and basis consequences) that are adequately addressed by a statute, regulation, decision of the Supreme Court, tax treaty, revenue ruling, revenue procedure, notice, or other authority published in the Internal Revenue Bulletin.

For purposes of this provision, if a transaction qualifies under both section 368(a)(1)(F) and another corporate restructuring provision, and the other provision is not covered by this revenue procedure, the Service will treat any request for a qualification ruling under the other provision as a request for a qualification ruling under section 368(a)(1)(F). A taxpayer or the taxpayer's representative (as the Service deems appropriate) seeking a qualification ruling under any such other provision must, accordingly, state to the best of knowledge and belief that the transaction does not qualify under section 368(a)(1)(F).

The Service will not rule on the qualification of a reorganization under section 368(a)(1)(F), even if it is an integral part of a larger transaction that involves other issues upon which the Service will rule and it is impossible to determine the tax consequences of the larger transaction without determining the tax consequences of the reorganization. However, in such event, the Service will rule on the tax consequences of the larger transaction, provided the taxpayer or the taxpayer's representative (as the Service deems appropriate) states to the best of knowledge and belief that the reorganization will (or will not) qualify under section 368(a)(1)(F). If the Service issues a ruling on the larger transaction, the ruling will state that no opinion is expressed as to whether or not the reorganization qualifies under section 368(a)(1)(F).

SUBISSUES: Additionally, the Service will have the discretion to rule on significant subissues that must be resolved to determine whether a transaction that is in this no-rule area qualifies under section 368(a)(1)(F). However, the Service will only rule on such subissues if in the view of the Service they are significant and not clearly and adequately addressed by a statute, regulation, decision of the Supreme Court, tax treaty, revenue ruling, revenue procedure, notice, or other authority published in the Internal Revenue Bulletin. To obtain a ruling on such a subissue, the taxpayer must explain the significance of the subissue, set forth the authorities most closely related to the subissue, and explain why the subissue is not resolved by these authorities. The Service will require the taxpayer or the taxpayer's representative (as the Service deems appropriate) to state to the best of knowledge and belief that the transaction will (or will not) qualify under section 368(a)(1)(F), if the Service rules as the taxpayer proposes on the subissue.

A taxpayer may seek a presubmission conference to determine whether a ruling on the subissue can be obtained under this section. See section 10.14, Rev. Proc. 95-1. If the Service issues a ruling on a subissue, the ruling will state that no opinion is expressed on whether the transaction in question qualifies under section 368(a)(1)(F).

COLLATERAL ISSUES: Although the Service will not rule on the consequences of qualification as a reorganization under section 368(a)(1)(F) if the consequences are adequately addressed by a statute, regulation, decision of the Supreme Court, tax treaty, revenue ruling, revenue procedure, notice, or other authority published in the Internal Revenue Bulletin, it will rule where the consequences of qualification are not adequately addressed by these authorities. To obtain a ruling on a collateral issue, the taxpayer or the taxpayer's representative (as the Service deems appropriate) must state to the best of knowledge and belief that the transaction qualifies under section 368(a)(1)(F), set forth the authorities most closely related to the collateral issue and explain why the collateral issue is not resolved by these authorities. If the Service issues a ruling on a collateral issue, the ruling will state that no opinion is expressed as to whether the transaction in question qualifies under section 368(a)(1)(F).

The Service will also continue to rule on issues that arise in connection with a transaction under section 368(a)(1)(F) but do not depend upon or affect qualification under section 368(a)(1)(F).

(29) Section 425. -- Substitution or Assumption of Incentive Stock Options. -- Whether the substitution of a new Incentive Stock Option ("ISO") for an old ISO, or the assumption of an old ISO, by an employer by reason of a corporate transaction constitutes a modification which results in the issuance of a new option by reason of failing to satisfy the spread test requirement of section 425(a)(1) or the ratio test requirement of section 1.425-1(a)(4). The Service will continue to rule on the issue of whether the new ISO or the assumption of the old ISO gives the employee additional benefits not present under the old option within the meaning of section 425(a)(2).

(30) Section 451. -- General Rule for Taxable Year of Inclusion. -- The tax consequences of a non-qualified unfunded deferred- compensation arrangement with respect to a controlling shareholder- employee eligible to participate in the arrangement.

(31) Section 451. -- General Rule for Taxable Year of Inclusion. -- The tax consequences of unfunded deferred compensation arrangements where the arrangements fail to meet the requirements of Rev. Proc. 92-65, 1992-2 C.B. 428, and Rev. Proc. 71-19, 1971-1 C.B. 698.

(32) Sections 451 and 457. -- General Rule for Taxable Year of Inclusion; Deferred Compensation Plans of State and Local Governments and Tax-Exempt Organizations. -- The tax consequences to unidentified independent contractors in nonqualified unfunded deferred- compensation plans. This applies to plans established under section 451 by employers in the private sector and to plans of state and local governments and tax-exempt organizations under section 457. However, a ruling with respect to a specific independent contractor's participation in such a plan may be issued.

(33) Section 641. -- Imposition of Tax. -- Whether the period of administration or settlement of an estate or a trust (other than a trust described in section 664) is reasonable or unduly prolonged.

(34) Section 642(c). -- Deduction for Amounts Paid or Permanently Set Aside for a Charitable Purpose. -- Allowance of an unlimited deduction for amounts set aside by a trust or estate for charitable purposes when there is a possibility that the corpus of the trust or estate may be invaded.

(35) Section 664. -- Charitable Remainder Trusts. -- Whether the settlement of a charitable remainder trust upon the termination of the noncharitable interest is made within a reasonable period of time.

(36) Section 704(e). -- Family Partnerships. -- Matters relating to the validity of a family partnership when capital is not a material income producing factor.

(37) Section 856. -- Definition of Real Estate Investment Trust. -- Whether a corporation whose stock is "paired" with or "stapled" to stock of another corporation will qualify as a real estate investment trust under section 856, if the activities of the corporations are integrated.

(38) Section 1034. -- See section 3.01(6), above.

(39) Section 1221. -- Capital Asset Defined. -- Whether specialty stock allocated to an investment account by a registered specialist on a national securities exchange is a capital asset.

(40) Section 1551. -- Disallowance of the Benefits of the Graduated Corporate Rates and Accumulated Earnings Credit. -- Whether a transfer is within section 1551.

(41) Section 2031. -- Definition of Gross Estate. -- Actuarial factors for valuing interests in the prospective gross estate of a living person.

(42) Section 2512. -- Valuation of Gifts. -- Actuarial factors for valuing prospective or hypothetical gifts of a donor.

(43) Sections 3121, 3306, and 3401. -- Definitions. -- For purposes of determining prospective employment status, whether an individual will be an employee or an independent contractor. A ruling with regard to prior employment status may be issued.

(44) Section 4980B. -- Failure to Satisfy Continuation Coverage Requirements of Group Health Plans. -- Whether an action is "gross misconduct" within the meaning of section 4980B(f)(3)(B). (See section 3.05 of Rev. Proc. 87-28, 1987-1 C.B. 770, 771.)

(45) Section 7701. -- Definitions. -- Whether a foreign arrangement that is a participant in a domestic arrangement classified as a partnership for United States tax purposes will itself be classified as a partnership.

(46) Section 7701. -- Definitions. -- The classification of an instrument that has certain voting and liquidations rights in an issuing corporation but whose dividend rights are determined by reference to the earnings of a segregated portion of the issuing corporation's assets, including assets held by a subsidiary.

.02 General Areas.

(1) The results of transactions that lack a bona fide business purpose or have as their principal purpose the reduction of federal taxes.

(2) A matter upon which a court decision adverse to the Government has been handed down and the question of following the decision or litigating further has not yet been resolved.

(3) A matter involving alternate plans of proposed transactions or involving hypothetical situations.

(4) A matter involving the federal tax consequences of any proposed federal, state, local or municipal legislation. The Service may provide general information in response to an inquiry.

(5) Whether under Subtitle F (Procedure and Administration) reasonable cause, due diligence, good faith, clear and convincing evidence, or other similar terms that require a factual determination exist.

(6) Whether a proposed transaction would subject the taxpayer to a criminal penalty.

(7) A request that does not comply with the provisions of Rev. Proc. 95-1.

(8) Whether, under the common law rules applicable in determining the employer-employee relationship, a professional staffing corporation (loan-out corporation) or the subscriber is the employer of individuals, if:

(i) the loan-out corporation hires employees of the subscriber and assigns the employees back to the subscriber, or

(ii) the loan-out corporation assigns individuals to subscribers for more than a temporary period (1 year or longer).

SECTION 4. AREAS IN WHICH RULINGS OR DETERMINATION LETTERS WILL NOT ORDINARILY BE ISSUED

.01 Specific questions and problems.

(1) Sections 38, 39, 46, and 48. -- General Business Credit; Carryback and Carryforward of Unused Credits; Amount of Credit; Energy Credit; Reforestation Credit. -- Application of these sections where the formal ownership of property is in a party other than the taxpayer, except when title is held merely as security.

(2) Section 61. -- Gross Income Defined. -- Determination as to who is the true owner of property in cases involving the sale of securities, or participation interests therein, where the purchaser has the contractual right to cause the securities, or participation interest therein, to be purchased by either the seller or a third party.

(3) Sections 61 and 163. -- Gross Income Defined; Interest. -- Determinations as to who is the true owner of property or the true borrower of money in cases in which the formal ownership of the property, or the liability for the indebtedness, is in another party.

(4) Section 103. -- Interest on State and Local Bonds. -- Whether the interest on state or local bonds will be excludible from gross income under section 103(a), if the proceeds of issues of bonds (other than advance refunding issues) are placed in escrow or otherwise not expended for a governmental purpose for an extended period of time even though the proceeds are invested at a yield that will not exceed the yield on the state or local bonds prior to their expenditure.

(5) Section 103. -- Interest on State and Local Bonds. -- Whether a state or local governmental obligation that does not meet the criteria of section 5 of Rev. Proc. 89-5, 1989-1 C.B. 774, is an "arbitrage bond" within the meaning of former section 103(c)(2) solely by reason of the investment of the bond proceeds in acquired nonpurpose obligations at a materially higher yield more than 3 years after issuance of the bonds or 5 years after issuance of the bonds in the case of construction issues described in section 1.103- 13(a)(2)(ii)(E).

(6) Section 141. -- Private Activity Bond; Qualified Bond. -- With respect to requests made pursuant to Rev. Proc. 88-33, 1988-1 C.B. 835, whether state or local bonds will meet the "private business use test" and the "private security or payment test" under section 141(b)(1) and (2) in situations in which the proceeds are used to finance certain output facilities and, pursuant to a contract to take, or take or pay for, a nongovernmental person purchases 30 percent or more of the actual output of the facility but 10 percent or less of the subparagraph (5) output of the facility as defined in section 1.103-7(b)(5)(ii)(b) (issued under former section 103(b)). In similar situations, the Service will not ordinarily issue rulings or determination letters concerning questions arising under paragraphs (3), (4), and (5) of section 141(b).

(7) Sections 142 and 144. -- Exempt Facility Bond; Qualified Small Issue Bond. -- Whether an issue of private activity bonds meets the requirements of section 142 or section 144(a), if the sum of --

(i) the portion of the proceeds used to finance a facility in which an owner (or a related person) or a lessee (or a related person) is a user of the facility both after the bonds are issued and at any time before the bonds were issued, and

(ii) the portion used to pay issuance costs and non-qualified costs, equals more than 5 percent of the net proceeds, as defined in section 150(a)(3).

(8) Section 148. -- Arbitrage. -- Whether amounts received as proceeds from the sale of municipal bond financed property and pledged to the payment of debt service or pledged as collateral for the municipal bond issue are sinking fund proceeds within the meaning of section 1.103-13(g) (issued under former section 103(c)) or replaced proceeds described in section 148(a)(2) (or former section 103(c)(2)(B)).

(9) Section 162. -- Trade or Business Expenses. -- Whether the requisite risk shifting and risk distribution necessary to constitute insurance are present for purposes of determining the deductibility under section 162 of amounts paid (premiums) by a taxpayer for insurance, unless the facts of the transaction are within the scope of Rev. Rul. 78-338, 1978-2 C.B. 107, or Rev. Rul. 77-316, 1977-2 C.B. 53.

(10) Sections 162 and 262. -- Trade or Business Expenses; Personal, Living, and Family Expenses. -- Whether expenses are nondeductible commuting expenses, except for situations governed by Rev. Rul. 90-23, 1990-1 C.B. 28.

(11) Section 163. -- See section 4.01(3), above.

(12) Section 167. -- Depreciation.

(i) Useful lives of assets.

(ii) Depreciation rates.

(iii) Salvage value of assets.

(13) Sections 167 and 168. -- Depreciation; Accelerated Cost Recovery System. -- Application of those sections where the formal ownership of property is in a party other than the taxpayer except when title is held merely as security.

(14) Section 170. -- Charitable, Etc., Contributions and Gifts. -- Whether a transfer to a pooled income fund described in section 642(c)(5) qualifies for a charitable contribution deduction under section 170(f)(2)(A).

(15) Section 170(c). -- Charitable, Etc., Contributions and Gifts. -- Whether a taxpayer who transfers property to a charitable organization and thereafter leases back all or a portion of the transferred property may deduct the fair market value of the property transferred and leased back as a charitable contribution.

(16) Section 170. -- Charitable, Etc., Contributions and Gifts. -- Whether a transfer to a charitable remainder trust described in section 664 that provides for annuity or unitrust payments for one or two measuring lives qualifies for a charitable deduction under section 170(f)(2)(A).

(17) Section 216. -- Deduction of Taxes, Interest, and Business Depreciation by Cooperative Housing Corporation Tenant-Stockholder. -- If a cooperative housing corporation (CHC), as defined in section 216(b)(1), transfers an interest in real property to a corporation (not a CHC) in exchange for stock or securities of the transferee corporation, which engages in commercial activity with respect to the real property interest transferred, whether (i) the income of the transferee corporation derived from the commercial activity, and (ii) any cash or property (attributable to the real property interest transferred) distributed by the transferee corporation to the CHC will be considered as gross income of the CHC for the purpose of determining whether 80 percent or more of the gross income of the CHC is derived from tenant-stockholders within the meaning of section 216(b)(1)(D).

(18) Section 262. -- See section 4.01(10), above.

(19) Section 265(a)(2). -- Expenses and Interest Relating to Tax-Exempt Income. -- Whether indebtedness is incurred or continued to purchase or carry obligations the interest on which is wholly exempt from the taxes imposed by subtitle A.

(20) Section 302. -- Distributions in Redemption of Stock. -- The tax effect of the redemption of stock for notes, when the payments on the notes are to be made over a period in excess of 15 years from the date of issuance of such notes.

(21) Section 302(b)(4) and (e). -- Redemption from Noncorporate Shareholder in Partial Liquidation; Partial Liquidation Defined. -- Whether a distribution will qualify as a distribution in partial liquidation under section 302(b)(4) and (e)(1)(A), unless it results in a 20 percent or greater reduction in (i) gross revenue, (ii) net fair market value of assets, and (iii) employees.

(22) Sections 302(b)(4) and (e), 331, 332, and section 346(a). -- Effects on Recipients of Distributions in Corporate Liquidations. -- The tax effect of the liquidation of a corporation preceded or followed by the reincorporation of all or a part of the business and assets when more than a nominal amount of the stock (that is, more than 20 percent in value) of both the liquidating corporation and the transferee corporation is owned by the same shareholders; or when a liquidation is followed by the sale of the corporate assets by the shareholders to another corporation in which such shareholders own more than a nominal amount of the stock (that is, more than 20 percent in value).

(23) Section 306. -- Dispositions of Certain Stock. -- Whether the distribution or disposition or redemption of "section 306 stock" in a closely held corporation is in pursuance of a plan having as one of its principal purposes the avoidance of federal income taxes within the meaning of section 306(b)(4).

(24) Sections 331 and 332. -- See section 4.01(22), above.

(25) Sections 331 and 346(a). -- Gain or Loss to Shareholders in Corporate Liquidations. -- The tax effect of the liquidation of a corporation by a series of distributions, when the distributions in liquidation are to be made over a period in excess of 3 years from the adoption of the plan of liquidation.

(26) Section 341. -- Collapsible Corporations. -- Whether a corporation will be considered to be a "collapsible corporation," that is, whether it was "formed or availed of" with the view of certain tax consequences. However, ruling requests will be considered on this matter when the enterprise (i) has been in existence for at least 20 years or has clearly demonstrated that it has realized two- thirds of the taxable income to be derived from the manufacturing, constructing, producing, or purchasing of property as stated in section 341(b)(1)(A) and as described in Rev. Rul. 72-48, 1972-1 C.B. 102; (ii) has had an aggregate change in the shareholders' interests of not more than 10 percent during that period (except for transfers among family members, as defined in section 267(c)(4), or redemptions of stock to pay death taxes pursuant to section 303); and (iii) has conducted substantially the same trade or business during that period. The period referred to in (ii) and (iii) above is the lesser of 20 years of corporate existence or the period in which the enterprise has realized two-thirds of the taxable income from activities specified in section 341(b)(1)(A).

(27) Section 346(a). -- See section 4.01(22), above.

(28) Section 346(a). -- See section 4.01(25), above.

(29) Section 351. -- Transfer to Corporation Controlled by Transferor. -- The tax effect of the transfer when part of the consideration received by the transferors consists of an instrument that is a bond, debenture, or any other evidence of indebtedness of the transferee and a determination as to whether the "indebtedness" is properly classified as debt or equity is required in order to establish that the requirements of section 351 are met.

(30) Section 351. -- Transfer to Corporation Controlled by Transferor. -- Whether section 351 applies to the transfer of an interest in real property by a cooperative housing corporation (as described in section 216(b)(1)) to a corporation in exchange for stock or securities of the transferee corporation, if the transferee engages in commercial activity with respect to the real property interest transferred.

(31) Section 355. -- Distribution of Stock and Securities of a Controlled Corporation. -- Whether the active business requirement of section 355(b) is met when, within the 5-year period described in section 355(b)(2)(B), a distributing corporation acquired control of a controlled corporation as a result of the distributing corporation transferring cash or other liquid or inactive assets to the controlled corporation in a transaction in which gain or loss was not recognized as a result of the transfer meeting the requirements of section 351(a) or section 368(a)(1)(D).

(32) Section 441(i). -- Taxable Year of Personal Service Corporations. -- Whether the principal activity of the taxpayer during the testing period for the taxable year is the performance of personal services within the meaning of section 1.441-4T(d)(1)(ii) of the temporary regulations.

(33) Section 448(d)(2)(A). -- Limitation on Use of Cash Method of Accounting; Qualified Personal Service Corporation. -- Whether 95 percent or more of the time spent by employees of the corporation, serving in their capacity as such, is devoted to the performance of services within the meaning of section 1.448-1T(e)(4)(i) of the temporary regulations.

(34) Section 451. -- General Rule for Taxable Year of Inclusion. -- The tax consequences of a nonqualified deferred compensation arrangement using a grantor trust where the trust fails to meet the requirements of Rev. Proc. 92-64, 1992-2 C.B. 422.

(35) Section 584. -- Common Trust Funds. -- Whether a common trust fund plan meets the requirements of section 584. (For section 584 plan drafting guidance, see Rev. Proc. 92-51, 1992-1 C.B. 988.)

(36) Section 642. -- Special Rules for Credits and Deductions; Pooled Income Fund. -- Whether a pooled income fund satisfies the requirements described in section 642(c)(5).

(37) Section 664. -- Charitable Remainder Trusts. -- Whether a charitable remainder trust that provides for annuity or unitrust payments for one or two measuring lives satisfies the requirements described in section 664.

(38) Sections 671 to 679. -- Grantors and Others Treated as Substantial Owners. -- In a nonqualified, unfunded deferred compensation arrangement described in Rev. Proc. 92-64, the tax consequences of the use of a trust, other than the model trust described in that revenue procedure.

(39) Section 816. -- Life Insurance Company Defined. -- Whether the requisite risk shifting and risk distribution necessary to constitute insurance are present for purposes of determining if a company is an "insurance company" under section 1.801-3(a), unless the facts of the transaction are within the scope of Rev. Rul. 78-338, 1978-2 C.B. 107, or Rev. Rul. 77-316, 1977-2 C.B. 53.

(40) Section 1502. -- Regulations. -- Whether a parent cooperative housing corporation (as defined in section 216(b)(1)) will be permitted to file a consolidated income tax return with its transferee subsidiary, if the transferee engages in commercial activity with respect to the real property interest transferred to it by the parent.

(41) Section 2055. -- Transfers for Public, Charitable, and Religious Uses. -- Whether a transfer to a pooled income fund described in section 642(c)(5) qualifies for a charitable deduction under section 2055(e)(2)(A).

(42) Section 2055. -- Transfers for Public, Charitable, and Religious Uses. -- Whether a transfer to a charitable remainder trust described in section 664 that provides for annuity or unitrust payments for one or two measuring lives qualifies for a charitable deduction under section 2055(e)(2)(A).

(43) Section 2522. -- Charitable and Similar Gifts. -- Whether a transfer to a pooled income fund described in section 642(c)(5) qualifies for a charitable deduction under section 2522(c)(2)(A).

(44) Section 2522. -- Charitable and Similar Gifts. -- Whether a transfer to a charitable remainder trust described in section 664 that provides for annuity or unitrust payments for one or two measuring lives qualifies for a charitable deduction under section 2522(c)(2)(A).

(45) Section 7701. -- Definitions. -- Whether what is generally known as a foreign corporation will be classified as a partnership for United States tax purposes, if the taxpayer requests classification as a partnership.

(46) Section 7701. -- Definitions. -- Whether a foreign partnership will be classified as an association for United States tax purposes, if the taxpayer requests classification as an association.

(47) Section 7701. -- Definitions. -- Whether a limited partnership lacks the corporate characteristics of limited liability and continuity of life if the limited partnership (i) is formed pursuant to a state limited partnership act that the Service has determined in a revenue ruling is a statute that corresponds to the Uniform Limited Partnership Act, and (ii) meets the other requirements contained in Rev. Proc. 92-88, 1992-2 C.B. 496.

.02 General areas.

(1) Any matter in which the determination requested is primarily one of fact, e.g., market value of property, or whether an interest in a corporation is to be treated as stock or indebtedness.

(2) The tax effect of any transaction to be consummated at some indefinite future time.

(3) Any matter dealing with the question of whether property is held primarily for sale to customers in the ordinary course of a trade or business.

(4) The tax effect of a transaction if any part of the transaction is involved in litigation among the parties affected by the transaction, except for transactions involving bankruptcy reorganizations.

(5)(a) Situations where the taxpayer or a related party is domiciled or organized in a foreign jurisdiction with which the United States does not have an effective mechanism for obtaining tax information with respect to civil tax examinations and criminal tax investigations, which would preclude the Service from obtaining information located in such jurisdiction that is relevant to the analysis or examination of the tax issues involved in the ruling request.

(b) The provisions of subsection (a) above shall not apply if the taxpayer or affected related party (i) consents to the disclosure of all relevant information requested by the Service in processing the ruling request or in the course of an examination in order to verify the accuracy of the representations made and to otherwise analyze or examine the tax issues involved in the ruling request, and (ii) waives all claims to protection of bank or commercial secrecy laws in the foreign jurisdiction with respect to the information requested by the Service. In the event the taxpayer's or related party's consent to disclose relevant information or to waive protection of bank or commercial secrecy is determined by the Service to be ineffective or of no force and effect, then the Service may retroactively rescind any ruling rendered in reliance on such consent.

SECTION 5. AREAS UNDER EXTENSIVE STUDY IN WHICH RULINGS OR DETERMINATION LETTERS WILL NOT BE ISSUED UNTIL THE SERVICE RESOLVES THE ISSUE THROUGH PUBLICATION Of A REVENUE RULING, REVENUE PROCEDURE, REGULATIONS OR OTHERWISE

.01 Section 61. -- Gross Income Defined. -- Whether amounts voluntarily deferred by a taxpayer under a deferred-compensation plan maintained by an organization described in section 501 (other than a plan maintained by an eligible employer pursuant to the provisions of section 457) are currently includible in the taxpayer's gross income.

.02 Sections 61 and 162. -- Gross Income Defined; Trade or Business Expenses. -- The tax consequences with respect to a salary reduction arrangement under which an employee receives and returns salary amounts to the employer. (Also sections 3121, 3306, and 3401.)

.03 Section 79. -- Group-Term Life Insurance Purchased for Employees. -- Whether life insurance provided for employees under a "retired lives reserve" plan will be considered group-term insurance. (Also sections 61, 72, 83, 101, 162, 264, and 641.)

.04 Sections 83 and 451. -- Property Transferred in Connection with Performance of Services; General Rule for Taxable Year of Inclusion. -- When compensation is realized by a person who, in connection with the performance of services, is granted a nonstatutory option without a readily ascertainable fair market value to purchase stock at a price that is less than the fair market value of the stock on the date the option is granted.

.05 Section 105. -- Amounts Received Under Accident and Health Plans. -- Whether a medical reimbursement plan, funded by employer contributions, containing a provision allowing unused amounts to be carried over and accumulated in an employee's account qualifies as an accident and health plan under section 105.

.06 Section 107. -- Rental value of parsonages. -- Whether amounts distributed to a retired minister from a pension or annuity plan should be excludible from the minister's gross income as a parsonage allowance under section 107.

.07 Section 162. -- See section 5.02, above.

.08 Section 162. -- Trade or Business Expenses. -- Whether payments paid or accrued by a corporation to an exempt organization as described in section 501(c)(7) or section 501(c)(20) are deductible under section 162.

.09 Section 213. -- Medical, Dental, etc., Expenses. -- "Whether amounts paid for medical insurance (or other medical care) extending substantially beyond the close of the taxable year may be deducted under section 213 in the year of payment, if the conditions of section 213(d)(7) are not satisfied.

.10 Section 302(b)(4) and (e). -- Redemption from Noncorporate Shareholder in Partial Liquidation; Partial Liquidation Defined. -- Whether a deemed surrender of stock as described in Rev. Rul. 90-13, 1990-1 C.B. 65, satisfies the requirements for a redemption, when:

(i) The corporation has outstanding more than one class of stock and there are priorities as to dividend or liquidating distributions or any other differences in stock rights, or

(ii) Either under the terms of the stock or as established contractually, there are outstanding any rights affecting the corporation's stock, such as, but not limited to, warrants, options, convertible securities, shareholder agreements, or rights of first refusal.

.11 Section 306(b)(4). -- Transactions Not in Avoidance. -- Whether section 306(b)(4) applies to the distribution and disposition or redemption of "section 306 stock" that is subject to mandatory redemption.

.12 Sections 331, 453, and 1239. -- The Tax Effects of Installment Sales of Property Between Entities with Common Ownership. -- The tax effects of a transaction in which there is a transfer of property by a corporation to a partnership or other noncorporate entity (or the transfer of stock to such entity followed by a liquidation of the corporation) when more than a nominal amount of the stock of such corporation and the capital or beneficial interests in the purchasing entity (that is, more than 20 percent in value) is owned by the same persons, and the consideration to be received by the selling corporation or the selling shareholders includes an installment obligation of the purchasing entity.

.13 Section 351. -- Transfer to Corporation Controlled by Transferor. -- Whether section 351 applies to the transfer of widely held developed or undeveloped real property or interests therein; widely held oil and gas properties or interests therein; or any similarly held properties or interests to a corporation in exchange for shares of stock of such corporation when (i) the transfer is the result of solicitation by promoters, brokers, or investment houses, or (ii) the transferee corporation's stock is issued in a form designed to render it readily tradable.

.14 Section 368. -- Definitions Relating to Corporate Reorganizations. -- Whether a transaction qualifies under either section 368(a)(1)(B) or section 351(a) by reason of Rev. Rul. 67-448, 1967-2 C.B. 144, when the same transaction is structured under section 368(a)(1)(A) and (a)(2)(E) (as a reverse triangular merger) and fails to qualify for an advance ruling under those sections merely because the "substantially all" requirement set forth in section 3.01 of Rev. Proc. 77-37, 1977-2 C.B. 568, as amplified by Rev. Proc. 86-42, 1986-2 C.B. 722, is not met.

.15 Section 368. -- Definitions Relating to Corporate Reorganizations. -- The tax consequences under section 368 or other provisions of the Code with respect to a transaction in which one corporation owns stock in a second corporation, the first corporation is not an "80-percent distributee" of the second corporation under section 337(c), and the two corporations are combined.

.16 Section 451. -- See section 5.04, above.

.17 Section 453. -- See section 5.12, above.

.18 Section 671. -- Trust Income, Deductions, and Credits Attributable to Grantors and Others as Substantial Owners -- Whether the grantor will be considered the owner of any portion of a trust when (i) the trust corpus consists or will consist substantially of insurance policies on the life of the grantor or the grantor's spouse, (ii) the trustee or any other person has a power to apply the trust's income or corpus to the payment of premiums on policies of insurance on the life of the grantor or the grantor's spouse, (iii) the trustee or any other person has a power to use the trust's assets to make loans to the grantor's estate or to purchase assets from the grantor's estate, and (iv) there is a right or power in any person that would cause the grantor to be treated as the owner of all or a portion of the trust under sections 673 to 677.

.19 Section 721. -- Nonrecognition of Gain or Loss on Contribution. -- Whether section 721 applies to the contribution of widely held developed or undeveloped real property or interests therein; widely held oil and gas properties or interests therein; or any similarly held properties or interests to a partnership in exchange for an interest in the partnership when (i) the contribution is the result of solicitation by promoters, brokers, or investment houses, or (ii) the interest in the transferee partnership is issued in a form designed to render it readily tradable.

.20 Section 1239. -- See section 5.12, above.

.21 Section 2503. -- Taxable Gifts. -- Whether the transfer of property to a trust will be a gift of a present interest in property when (i) the trust corpus consists or will consist substantially of insurance policies on the life of the grantor or the grantor's spouse, (ii) the trustee or any other person has a power to apply the trust's income or corpus to the payment of premiums on policies of insurance on the life of the grantor or the grantor's spouse, (iii) the trustee or any other person has a power to use the trust's assets to make loans to the grantor's estate or to purchase assets from the grantor's estate, (iv) the trust beneficiaries have the power to withdraw, on demand, any additional transfers made to the trust, and (v) there is a right or power in any person that would cause the grantor to be treated as the owner of all or a portion of the trust under sections 673 to 677.

.22 Section 2514. -- Powers of Appointment. -- If the beneficiaries of a trust permit a power of withdrawal to lapse, whether section 2514(e) will be applicable to each beneficiary in regard to the power when (i) the trust corpus consists or will consist substantially of insurance policies on the life of the grantor or the grantor's spouse, (ii) the trustee or any other person has a power to apply the trust's income or corpus to the payment of premiums on policies of insurance on the life of the grantor or the grantor's spouse, (iii) the trustee or any other person has a power to use the trust's assets to make loans to the grantor's estate or to purchase assets from the grantor's estate, (iv) the trust beneficiaries have the power to withdraw, on demand, any additional transfers made to the trust, and (v) there is a right or power in any person that would cause the grantor to be treated as the owner of all or a portion of the trust under sections 673 to 677.

.23 Sections 3121, 3306, and 3401. -- Definitions; Employment Taxes. -- Who is the employer of an "employee-owner" as defined in section 269A(b)(2).

.24 Section 7701. -- Definitions. -- The classification of separately tradable instruments that are issued by a corporation as a unit, the components of which collectively contain the attributes of stock.

SECTION 6. AREAS COVERED BY AUTOMATIC APPROVAL PROCEDURES IN WHICH RULINGS WILL NOT ORDINARILY BE ISSUED

.01 Section 442. -- Change of Annual Accounting Period. -- All situations where the Service has provided an administrative procedure for obtaining a change in annual accounting period. See Rev. Proc. 92-13, 1992-1 C.B. 665 (as modified by Rev. Proc. 94-12, 1994-1 C.B. 565, and as modified and amplified by Rev. Proc. 92-13A, 1992-1 C.B. 668) (certain corporations that have not changed their accounting period within the prior 6 calendar years or other specified time), Rev. Proc. 87-32, 1987-2 C.B. 396, as modified by Rev. Proc. 92-85, 1992-2 C.B. 490 (partnership, S corporation, or personal service corporation seeking a natural business year or an ownership taxable year), Rev. Proc. 68-41, 1968-2 C.B. 943 (as modified by Rev. Proc. 81-40, 1981-2 C.B. 604) (trusts held by certain fiduciaries needing a workload spread), and Rev. Proc. 66-50, 1966-2 C.B. 1260 (as modified by Rev. Proc. 81-40) (individual seeking a calendar year).

.02 Section 446. -- General Rule for Methods of Accounting. All situations where the Service has provided an administrative procedure for obtaining a change in method of accounting. See Rev. Proc. 94-49, 1994-30 I.R.B. 31 (certain taxpayers changing their method of accounting for costs subject to section 263A), Rev. Proc. 94-30, 1994-1 C.B. 621 (certain taxpayers changing their method of accounting for de minimis original issue discount (OID) on loans acquired before a specified cut-off date, Rev. Proc. 94-29, 1994-1 C.B. 616 (certain taxpayers seeking to use the principal-reduction method for de minimis OID on certain loans originated by the taxpayer); Rev. Proc. 94-28, 1994-1 C.B. 614 (certain taxpayers changing their method of accounting for debt instruments issued on or after a specified cut-off date in order to comply with regulations dealing with OID and other related matters), Rev. Proc. 93-48, 1993-2 C.B. 580 (certain taxpayers required to change their method of accounting for notional principal contracts entered into after December 12, 1993), Rev. Proc. 93-13, 1993-1 C.B. 482 (certain domestic taxpayers required to change their method of accounting to comply with section 267(a)(3) for deducting amounts owed to related foreign persons), Rev. Proc. 92-98, 1992-2 C.B. 512 (certain accrual method taxpayers selling multi-year service warranty contracts seeking to elect the service warranty income method), Rev. Proc. 92-75, 1992-2 C.B. 448 (certain taxpayers, other than those required to use inventories, seeking to change to an accrual method), Rev. Proc. 92-74, 1992-2 C.B. 442 (certain taxpayers, required to use inventories, seeking to change to an accrual method), Rev. Proc. 92-67, 1992-2 C.B. 429 (certain taxpayers with one or more market discount bonds seeking to make a constant interest rate election or seeking to make or revoke an election under section 1278(b)), Rev. Proc. 91-51, 1991-2 C.B. 779 (certain taxpayers that sell mortgages and retain rights to service the mortgages), Rev. Proc. 91-49, 1991-2 C.B. 777 (holders of certain mortgages that are stripped bonds), Rev. Proc. 91-31, 1991-1 C.B. 566, 568, 569 (certain utilities holding customer deposits), Rev. Proc. 90-63, 1990-2 C.B. 664 (certain taxpayers changing their accounting treatment of package design costs), Rev. Proc. 90-37, 1990-2 C.B. 361 (certain taxpayers with interest income from short-term loans), Rev. Proc. 89-46, 1989-1 C.B. 597 (cash basis taxpayers with certain United States savings bonds), Rev. Proc. 88-15, 1988-1 C.B. 683 (certain taxpayers seeking to discontinue LIFO inventory), Rev. Proc. 85-8, 1985-1 C.B. 495 (certain taxpayers seeking to change from specific charge-off method to reserve method for bad debts), Rev. Proc. 84-76, 1984-2 C.B. 751 (taxpayers seeking to treat prepaid subscription income under the provisions of section 455), Rev. Proc. 84-30, 1984-1 C.B. 482 (taxpayers who used the Rule of 78's with respect to interest on consumer loans), Rev. Proc. 84-29, 1984-1 C.B. 480 (individual borrowers who reported interest deductions in accordance with the Rule of 78's), Rev. Proc. 84-28, 1984-1 C.B. 475 (taxpayers who were required to change from the Rule of 78's to the "prescribed method" for the first taxable year ending on or after December 31, 1983, as a result of interest computed under the Rule of 78's exceeding loan repayment during any year of the loan), Rev. Proc. 84-27, 1984-1 C.B. 469 (certain other taxpayers who were required to change from the Rule of 78's to the "prescribed method" for the first or second taxable year ending on or after December 31, 1983), and Rev. Proc. 74-11, 1974-1 C.B. 420 (taxpayers seeking to change their method of depreciation accounting).

.03 Section 461. -- General Rule for Taxable Year of Deduction. -- All situations where the Service has provided an administrative procedure for making or revoking an election under section 461. See Rev. Proc. 92-29, 1992-1 C.B. 748 (dealing with the use of an alternative method for including in basis the estimated cost of certain common improvements in a real estate development), and Rev. Proc. 92-28, 1992-1 C.B. 745, as amplified by Rev. Proc. 94-32, 1994-1 C.B. 627 (dealing with ratable accrual of real property taxes).

.04 Section 1362. -- Elections; Revocations; Termination. -- All situations in which an S corporation qualifies for automatic inadvertent termination relief under Rev. Proc. 94-23, 1994-1 C.B. 609.

.05 Sections 1502, 1504, and 1552. -- Regulations; Definitions; Earnings and Profits. -- All situations where the Service has provided an administrative procedure for obtaining waivers or consents on consolidated return issues. See Rev. Proc. 90-53, 1990-2 C.B. 636 (certain corporations seeking reconsolidation within the 5- year period specified in section 1504(a)(3)(A)), Rev. Proc. 90-39, 1990-2 C.B. 365 (certain affiliated groups of corporations seeking, for earnings and profits determinations, to make an election or a change in their method of allocating the group's consolidated federal income tax liability), and Rev. Proc. 89-56, 1989-2 C.B. 643 (certain affiliated groups of corporations seeking to file a consolidated return where member(s) of the group use a 52-53 week taxable year).

SECTION 7. EFFECT ON OTHER REVENUE PROCEDURES

Rev. Proc. 94-3 and Rev. Proc. 94-76 are superseded.

DRAFTING INFORMATION

The principal author of this revenue procedure is Michael Danbury of the Office of Assistant Chief Counsel (Corporate). For further information about this revenue procedure, please contact Mr. Danbury at (202) 622-7550 (not a toll-free call).