SERVICE ADDS CAFETERIA PLAN AND INCENTIVE STOCK OPTION PLAN ISSUES TO 'NO-RULE' LIST.

Rev. Proc. 90-54

SECTION 1. BACKGROUND

Rev. Proc. 90-3, 1990-1 C.B. 402, sets forth areas under the jurisdiction of the Associate Chief Counsel (Technical) in which advance rulings or determination letters will not be issued by the Service. Section 3 of Rev. Proc. 90-3 is entitled "Areas In Which Rulings or Determination Letters Will Not Be Issued."

SEC. 2. PROCEDURE

Rev. Proc. 90-3 is amended by adding to section 3 the following new paragraphs:

Section 125. -- Benefits Under a Cafeteria Plan -- 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.

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) of the Code or the ratio test requirement of section 1.425- 1(a)(4) of the regulations. We 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).

SEC 3. EFFECTIVE DATE

This revenue procedure applies to all ruling requests received by the Service on or after the date of publication of this revenue procedure in the Internal Revenue Bulletin.

SEC. 4. EFFECT ON OTHER REVENUE PROCEDURES

Rev. Proc. 90-3 is amplified.

DRAFTING INFORMATION

The principal authors of this revenue procedure are Felix Zech and Charles Deliee of the Office of Assistant Chief Counsel (Employee Benefits and Exempt Organizations). For further information regarding this revenue procedure contact Mr. Zech or Mr. Deliee on (202) 566- 3251 or 566-4734 (not a toll-free call).