HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 2002–64, page 688.LIFO; price indexes; department stores. The August 2002Bureau of Labor Statistics price indexes are accepted for use bydepartment stores employing the retail inventory and last-in, first-out inventory methods for valuing inventories for tax years endedon, or with reference to, August 31, 2002.

Notice 2002–64, page 690.New markets tax credit; other federal tax benefits. This no-tice provides guidance to taxpayers on federal tax benefits thatdo not limit the availability of the new markets tax credit undersection 45D of the Code.

Notice 2002–65, page 690.This notice advises taxpayers and their representatives that thetransaction it describes, which uses a straddle, an S corpora-tion or a partnership, and one or more transitory shareholdersor partners to claim a loss while deferring an offsetting gain, issubject to challenge by the Service on several grounds. This no-tice holds that the described transaction is a “listed transac-tion” and warns of penalties that may be imposed if taxpayersclaim losses from such a transaction.

EXEMPT ORGANIZATIONS

Announcement 2002–92, page 709.This document requests comments regarding proposed revi-sions of Form 1023, Application for Recognition of Exemp-tion Under Section 501(c)(3) of the Internal Revenue Code,and Instructions for Form 1023.

ADMINISTRATIVE

Rev. Proc. 2002–63, page 691.Per diem allowances. This procedure provides rules for deem-ing substantiated the amount of certain reimbursed traveling ex-penses of an employee as well as optional rules for determiningthe amount of deductible meals and incidental expenses whiletraveling away from home. Rev. Proc. 2001–47 superseded.

Rev. Proc. 2002–65, page 700.Business expenses; capital expenditures; railroad trackmaintenance costs. This procedure provides a safe harbormethod of accounting (track maintenance allowance method) fortrack structure expenditures paid or incurred by certain rail-roads. It also provides procedures for a qualifying taxpayer toobtain automatic consent from the Commissioner to change tothe track maintenance allowance method. In addition, this pro-cedure provides an option for certain qualifying taxpayers to settlethe issue of track structure expenditures for open taxable yearsusing the track maintenance allowance method. Rev. Procs.2001–46 and 2002–9 modified and amplified.

Announcement 2002–93, page 709.This document contains a correction to the date and location ofa public hearing on proposed regulations (REG–165868–01,2002–31 I.R.B. 270) under section 419A of the Code, which pro-vide guidance regarding whether a welfare benefit plan is partof a 10-or-more employer plan.

Bulletin No. 2002–41October 15, 2002

Finding Lists begin on page ii.

The IRS Mission

Provide America’s taxpayers top quality service by helping themunderstand and meet their tax responsibilities and by applyingthe tax law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument of theCommissioner of Internal Revenue for announcing official rul-ings and procedures of the Internal Revenue Service and for pub-lishing Treasury Decisions, Executive Orders, Tax Conventions,legislation, court decisions, and other items of general inter-est. It is published weekly and may be obtained from the Super-intendent of Documents on a subscription basis. Bulletin contentsare consolidated semiannually into Cumulative Bulletins, whichare sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, modify,or amend any of those previously published in the Bulletin. All pub-lished rulings apply retroactively unless otherwise indicated. Pro-cedures relating solely to matters of internal management arenot published; however, statements of internal practices and pro-cedures that affect the rights and duties of taxpayers are pub-lished.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpay-ers or technical advice to Service field offices, identifying de-tails and information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported to the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not be re-lied on, used, or cited as precedents by Service personnel in thedisposition of other cases. In applying published rulings and pro-

cedures, the effect of subsequent legislation, regulations, courtdecisions, rulings, and procedures must be considered, and Ser-vice personnel and others concerned are cautioned against reach-ing the same conclusions in other cases unless the facts andcircumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code. This part includes rulings and decisionsbased on provisions of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation. This part is divided intotwo subparts as follows: Subpart A, Tax Conventions and OtherRelated Items, and Subpart B, Legislation and Related Commit-tee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to these sub-jects are contained in the other Parts and Subparts. Also in-cluded in this part are Bank Secrecy Act Administrative Rulings.Bank Secrecy Act Administrative Rulings are issued by the De-partment of the Treasury’s Office of the Assistant Secretary (En-forcement).

Part IV.—Terms of General Interest. This part includes no-tices of proposed rulemakings, disbarment and suspension lists,and announcements.

The first Bulletin for each month includes a cumulative index forthe matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the first Bulletin of the succeeding semiannual pe-riod, respectively.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

October 15, 2002 2002–41 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

Section 62.—Adjusted GrossIncome Defined

26 CFR 1.62–2: Reimbursements and other ex-pense allowance arrangements.

Rules are provided under which a reimburse-ment or other expense allowance arrangement for thecost of lodging, meal, and incidental expenses, or ofmeal and incidental expenses, incurred by an em-ployee while traveling away from home will satisfythe requirements of § 62(c) of the Code as to sub-stantiation of the amount of the expenses. See Rev.Proc. 2002-63, page 691.

Section 162.—Trade orBusiness Expenses

26 CFR 1.162–17: Reporting and substantiation ofcertain business expenses of employees.

Rules are provided for substantiating the amountof a deduction of an expense for meal and inciden-tal expenses, or for incidental expenses only, in-curred while traveling away from home. See Rev. Proc.2002–63, page 691.

Section 267.—Losses,Expenses, and Interest WithRespect to Transactions Be-tween Related Taxpayers

26 CFR 1.267(a)–1: Deductions disallowed.

When a payor provides a per diem allowance toan employee who is a related party, the rules pro-vided for the deemed substantiation to the payor ofthe amount of the employee’s ordinary and neces-sary business expenses for lodging, meal, and inci-

dental expenses incurred while traveling away fromhome do not apply. See Rev. Proc. 2002–63, page 691.

Section 274.—Disallowanceof Certain Entertainment,etc., Expenses

26 CFR 1.274–5: Substantiation requirements.

Rules are provided for an optional method for sub-stantiating the amount of ordinary and necessary busi-ness expenses of an employee for lodging, meal, andincidental expenses, or for meal and incidental ex-penses, incurred while traveling away from home whena payor provides a per diem allowance under a re-imbursement or other expense allowance arrange-ment. Rules are alo provided for an optional methodfor employees and self-employed individuals to usein computing the deductible costs of business meal andincidental expenses, or incidental expenses only, paidor incurred while traveling away from home. See Rev.Proc. 2002-63, page 691.

Section 446.—General Rulefor Methods of Accounting

26 CFR 1.446–1: General rule for methods ofaccounting.

A safe harbor method of accounting is providedfor track structure expenditures paid or incurred byClass II or III railroads, as well as procedures for au-tomatic consent to change to this method. See Rev.Proc. 2002–65, page 700.

Section 472.—Last-in,First-out Inventories26 CFR 1.472–1: Last-in, first-out inventories.

LIFO; price indexes; departmentstores. The August 2002 Bureau of La-bor Statistics price indexes are accepted foruse by department stores employing the re-tail inventory and last-in, first-out inven-tory methods for valuing inventories for taxyears ended on, or with reference to,August 31, 2002.

Rev. Rul. 2002–64The following Department Store Inven-

tory Price Indexes for August 2002 were is-sued by the Bureau of Labor Statistics. Theindexes are accepted by the Internal Rev-enue Service, under § 1.472–1(k) of the In-come Tax Regulations and Rev. Proc. 86–46, 1986–2 C.B. 739, for appropriateapplication to inventories of departmentstores employing the retail inventory andlast-in, first-out inventory methods for taxyears ended on, or with reference toAugust 31, 2002.

The Department Store Inventory PriceIndexes are prepared on a national basis andinclude (a) 23 major groups of depart-ments, (b) three special combinations of themajor groups — soft goods, durable goods,and miscellaneous goods, and (c) a store to-tal, which covers all departments, includ-ing some not listed separately, except forthe following: candy, food, liquor, tobacco,and contract departments.

BUREAU OF LABOR STATISTICS, DEPARTMENT STOREINVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Groups August2001

August2002

Percent Changefrom August

2001to August 20021

1. Piece Goods-------------------------------------------------------------- 485.7 481.8 −0.82. Domestics and Draperies ---------------------------------------------- 591.8 577.9 −2.33. Women’s and Children’s Shoes--------------------------------------- 655.4 634.4 −3.24. Men’s Shoes ------------------------------------------------------------- 856.4 892.1 4.25. Infant’s Wear------------------------------------------------------------- 609.5 600.1 −1.56. Women’s Underwear --------------------------------------------------- 567.5 532.7 −6.17. Women’s Hosiery ------------------------------------------------------- 354.8 342.7 −3.48. Women’s and Girl’s Accessories ------------------------------------- 547.2 523.9 −4.39. Women’s Outerwear and Girls’ Wear-------------------------------- 361.6 361.5 0.0

2002–41 I.R.B. 688 October 15, 2002

BUREAU OF LABOR STATISTICS, DEPARTMENT STOREINVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Groups August2001

August2002

Percent Changefrom August

2001to August 20021

10. Men’s Clothing ---------------------------------------------------------- 579.2 563.8 −2.711. Men’s Furnishings ------------------------------------------------------ 583.9 589.4 0.912. Boys’ Clothing and Furnishings -------------------------------------- 469.2 439.2 −6.413. Jewelry-------------------------------------------------------------------- 936.3 887.0 −5.314. Notions-------------------------------------------------------------------- 793.0 793.2 0.015. Toilet Articles and Drugs ---------------------------------------------- 969.9 969.2 −0.116. Furniture and Bedding ------------------------------------------------- 633.9 623.9 −1.617. Floor Coverings --------------------------------------------------------- 623.8 621.3 −0.418. Housewares--------------------------------------------------------------- 767.6 749.4 −2.419. Major Appliances ------------------------------------------------------- 226.9 221.8 −2.220. Radio and Television --------------------------------------------------- 53.4 47.9 −10.321. Recreation and Education2--------------------------------------------- 89.3 85.7 −4.022. Home Improvements2 -------------------------------------------------- 125.8 125.4 −0.323. Auto Accessories2 ------------------------------------------------------- 109.4 111.8 2.2

Groups 1 – 15: Soft Goods ----------------------------------------------------- 575.5 565.9 −1.7Groups 16 – 20: Durable Goods ----------------------------------------------- 421.8 408.4 −3.2Groups 21 – 23: Misc. Goods2------------------------------------------------- 98.2 96.2 −2.0

Store Total3--------------------------------------------------------------- 518.8 508.3 −2.0

1Absence of a minus sign before the percentage change in this column signifies a price increase.2Indexes on a January 1986=100 base.3The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor,

tobacco, and contract departments.

DRAFTING INFORMATION

The principal author of this revenue rul-ing is Michael Burkom of the Office of As-sociate Chief Counsel (Income Tax andAccounting). For further information re-garding this revenue ruling, contactMr. Burkom at (202) 622–7718 (not a toll-free call).

Section 481.—AdjustmentsRequired by Changes inMethod of Accounting

26 CFR 1.481–1: Adjustments in general.

A safe harbor method of accounting is providedfor track structure expenditures paid or incurred byClass II or III railroads, as well as procedures for au-tomatic consent to change to this method. See Rev.Proc. 2002-65, page 700.

October 15, 2002 689 2002–41 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous

Section 45D New Markets TaxCredit

Notice 2002–64

PURPOSE

This notice provides guidance to tax-payers on federal tax benefits that do notlimit the availability of the new markets taxcredit under § 45D of the Internal Rev-enue Code.

BACKGROUND

Section 45D(a)(1) allows a new mar-kets tax credit on a credit allowance date(as defined in § 45D(a)(3)) to a taxpayerwho holds a qualified equity investment ina qualified community development en-tity (CDE), as defined in § 45D(c).

Section 45D(b)(1) provides that an eq-uity investment in a CDE is a “qualified eq-uity investment” only if, among otherthings, the CDE uses substantially all of theproceeds of the investment to make quali-fied low-income community investments.

Section 45D(d) provides that the term“qualified low-income community invest-ment” means (A) any capital or equity in-vestment in, or loan to, any qualified activelow-income community business, (B) thepurchase from another CDE of any loanmade by the entity which is a qualified low-income community investment, (C) finan-cial counseling and other services specifiedin regulations prescribed by the Secretaryto businesses located in, or residents of,low-income communities, and (D) any eq-uity investment in, or loan to, any CDE.

Section 45D(i)(1) authorizes the Secre-tary to prescribe regulations as may be ap-propriate to carry out § 45D includingregulations that limit the new markets taxcredit for investments that are directly orindirectly subsidized by other federal taxbenefits (including the low-income hous-ing credit under § 42 and the exclusion fromgross income under § 103).

On December 26, 2001, the TreasuryDepartment and the Internal Revenue Ser-vice published temporary regulations (T.D.8971, 2002–3 I.R.B. 308 [66 FR 66307])in the Federal Register. The text of thetemporary regulations does not provide

guidance as to what federal tax benefitslimit the availability of the new markets taxcredit.

DISCUSSION

Until further guidance is provided, theavailability of federal tax benefits, other than§ 42, does not limit the availability of thenew markets tax credit. The Treasury De-partment and the Service are studying how§ 42 may limit the availability of the newmarkets tax credit.

Federal tax benefits that do not limit theavailability of the new markets tax creditinclude, for example: (1) the rehabilita-tion credit under § 47; (2) all deprecia-tion deductions under §§ 167 and 168,including the additional first-year depre-ciation for certain property acquired afterSeptember 10, 2001, and before Septem-ber 11, 2004, under § 168(k), and the ex-pense deduction for certain depreciableproperty under § 179; and (3) all tax ben-efits relating to certain designated areas suchas empowerment zones and enterprise com-munities under §§ 1391 through 1397D, theDistrict of Columbia Enterprise Zone un-der §§ 1400 through 1400B, renewal com-munities under §§ 1400E through 1400J,and the New York Liberty Zone under§ 1400L.

Taxpayers may rely on this notice priorto the issuance of further guidance. In thefuture, the Secretary may issue guidance thatlimits the new markets tax credit for in-vestments which are directly or indirectlysubsidized by other federal tax benefits.

DRAFTING INFORMATION

The principal author of this notice isGreg Doran of the Office of Associate ChiefCounsel (Passthroughs and Special Indus-tries). For further information regarding thisnotice, contact Mr. Doran at (202) 622–3040 (not a toll-free call).

Passthrough Entity StraddleTax Shelter

Notice 2002–65

The Internal Revenue Service and theTreasury Department have become awareof a type of transaction, described below,

that is being used by taxpayers for the pur-pose of generating deductions. This no-tice alerts taxpayers and their representativesthat the tax benefits purportedly gener-ated by these transactions are not allow-able for federal income tax purposes. Thisnotice also alerts taxpayers, their represen-tatives, and promoters of these transac-tions of certain responsibilities that mayarise from participating in these transac-tions.

FACTS

This transaction involves a series of pre-planned steps. First, Taxpayer and one ormore other shareholders form a corpora-tion that elects to be treated as an S cor-poration under § 1362(a) of the InternalRevenue Code. Taxpayer initially has a mi-nority stock interest in the S corporation.

The S corporation enters into straddleson foreign currencies and may acquire otherassets. The S corporation terminates the gainleg of a foreign currency straddle, and al-locates the gain to the shareholders pro rataaccording to their stock ownership. The gainincreases each shareholder’s basis in thestock of the S corporation under § 1367(a)(1). The S corporation redeems the stockof all of the shareholders other than Tax-payer, and the other shareholders claim aloss as a result of the redemption. The Scorporation files an election under§ 1377(a)(2) to treat the S corporation’s tax-able year as though it consists of two sepa-rate taxable years, with the first year endingon the date of the redemption.

After the redemption, the S corpora-tion terminates the loss leg of the foreigncurrency straddle. In order to maximize theallowable loss, Taxpayer also may engagein a transaction that is intended to increaseTaxpayer’s basis in the S corporation. Forexample, Taxpayer may make a loan to theS corporation.

The entire loss from the loss leg of thestraddle passes through to Taxpayer, the soleremaining shareholder in the S corpora-tion, under § 1366. The loss reduces Tax-payer’s basis in the stock (and indebtedness,if any) of the S corporation under§ 1367(a)(2). Due to the reduction in Tax-payer’s basis in the S corporation’s stock(and indebtedness, if any), Taxpayer willrecognize gain when the corporation makes

2002–41 I.R.B. 690 October 15, 2002

additional payments to Taxpayer or Tax-payer disposes of Taxpayer’s interest in theS corporation.

Similar transactions may be structuredusing a partnership in the place of the S cor-poration.

ANALYSIS

The transaction described in this no-tice has been designed to use a straddle, oneor more transitory shareholders, and therules of subchapter S to allow Taxpayer toclaim an immediate loss while deferring anoffsetting gain in Taxpayer’s investment inthe S corporation. The Service intends tochallenge the purported tax benefits fromthis transaction on a number of grounds.First, the Service may disallow Taxpay-er’s loss under § 165(c)(2) by asserting thatthe loss was not incurred in a transactionundertaken for profit. See Smith v. Com-missioner, 78 T.C. 350 (1982) and Fox v.Commissioner, 82 T.C. 1001 (1984) (dis-allowing losses from straddle transactions).Second, the Service may disregard the tran-sitory ownership of the shareholders otherthan Taxpayer. See Comtel Corporation v.Commissioner, 376 F.2d 791 (2d Cir. 1967)(transitory shareholders’ interests not re-spected). Under this argument, the Ser-vice would allocate all of the income andlosses from the activities of the S corpo-ration to Taxpayer. Third, the Service maydisallow Taxpayer’s loss deduction under§ 269 by asserting that Taxpayer acquiredcontrol of the S corporation with the prin-cipal purpose of avoiding or evading fed-eral income tax. In addition, the Servicemay challenge the allowance of the loss de-duction based on other statutory provi-sions, including § 988, and judicialdoctrines, including the step transaction doc-trine and the doctrines of economic sub-stance, business purpose, and substance overform. Transactions that use a partnership in-stead of an S corporation also will be chal-lenged under the partnership anti-abuse rulecontained in § 1.701–2 of the Income TaxRegulations. See § 1.701–2(d) (Ex. 8).

Transactions that are the same as, or sub-stantially similar to, the transaction de-scribed in this notice are identified as “listedtransactions” for purposes of § 1.6011–4T(b)(2) of the temporary Income TaxRegulations and § 301.6111–2T(b)(2) of thetemporary Procedure and AdministrationRegulations. See also § 301.6112–1T, A–4.The transaction described in this notice and

the transaction described in Notice 2002–50, 2002–28 I.R.B. 98, (Partnership StraddleTax Shelter) are substantially similar trans-actions. For purposes of § 1.6011–4T(b)(2)and § 301.6111–2T(b)(2), a transaction willbe considered the same as, or substan-tially similar to, the transaction describedin this notice even if the gain and loss legsof the straddle are triggered in separate tax-able years, or if, at the time relevant formaking such determination, the corpora-tion in the transaction has not elected un-der § 1377(a)(2) to treat the S corporation’staxable year as though it consisted of twoseparate taxable years. Further, it should benoted that, independent of their classifica-tion as “listed transactions” for purposes of§§ 1.6011–4T(b)(2) and 301.6111–2T(b)(2),transactions that are the same as, or sub-stantially similar to, the transaction de-scribed in this notice may already be subjectto the disclosure requirements of § 6011, thetax shelter registration requirements of§ 6111 or the list maintenance require-ments of § 6112 (§§ 1.6011–4T, 301.6111–1T, 301.6111–2T and 301.6112–1T, A–3 andA–4).

Persons who are required to satisfy theregistration requirement of § 6111 with re-spect to the transaction described in this no-tice and who fail to do so may be subjectto the penalty under § 6707(a). Persons whoare required to satisfy the list-keeping re-quirement of § 6112 with respect to thetransaction and who fail to do so may besubject to the penalty under § 6708(a). Inaddition, the Service may impose penal-ties on participants in this transaction orsubstantially similar transactions, or, as ap-plicable, on persons who participate in thepromotion or reporting of this transactionor substantially similar transactions, in-cluding the accuracy-related penalty un-der § 6662, the return preparer penalty under§ 6694, the promoter penalty under § 6700,and the aiding and abetting penalty under§ 6701.

The principal author of this notice isDemetri Yatrakis of the Office of Associ-ate Chief Counsel (Passthroughs and Spe-cial Industries). For further informationregarding this notice, contact Mr. Yatrakisat (202) 622–3060 (not a toll-free call).

26 CFR 601.105: Examination of returns and

claims for refund, credit, or abatement; determina-

tion of correct tax liability.

(Also Part I, §§ 62, 162, 267, 274; 1.62–2, 1.162–

17, 1.267(a)–1, 1.274–5.)

Rev. Proc. 2002–63

SECTION 1. PURPOSE

This revenue procedure updates Rev.Proc. 2001–47, 2001–2 C.B. 332, by pro-viding rules under which the amount of or-dinary and necessary business expenses ofan employee for lodging, meal, and inci-dental expenses or for meal and inciden-tal expenses incurred while traveling awayfrom home will be deemed substantiated un-der § 1.274–5 of the Income Tax Regula-tions when a payor (the employer, its agent,or a third party) provides a per diem al-lowance under a reimbursement or other ex-pense allowance arrangement to pay forsuch expenses. In addition, this revenue pro-cedure provides an optional method for em-ployees and self-employed individuals whopay or incur meal costs to use in comput-ing the deductible costs of business mealand incidental expenses paid or incurredwhile traveling away from home. This rev-enue procedure also provides an optionalmethod for use in computing the deduct-ible costs of incidental expenses paid or in-curred while traveling away from home byemployees and self-employed individualswho do not pay or incur meal costs andwho are not reimbursed for the incidentalexpenses. Use of a method described in thisrevenue procedure is not mandatory, and ataxpayer may use actual allowable expensesif the taxpayer maintains adequate recordsor other sufficient evidence for proper sub-stantiation. This revenue procedure does notprovide rules under which the amount ofan employee’s lodging expenses will bedeemed substantiated when a payor pro-vides an allowance to pay for those ex-penses but not meal and incidental expenses.

SECTION 2. BACKGROUND ANDCHANGES

.01 Section 162(a) of the Internal Rev-enue Code allows a deduction for all the or-dinary and necessary expenses paid orincurred during the taxable year in carry-ing on any trade or business. Under thatprovision, an employee or self-employed in-

October 15, 2002 691 2002–41 I.R.B.

dividual may deduct expenses paid or in-curred while traveling away from home inpursuit of a trade or business. However, un-der § 262, no portion of the travel expensesthat is attributable to personal, living, orfamily expenses is deductible.

.02 Section 274(n) generally limits theamount allowable as a deduction under§ 162 for any expense for food, bever-ages, or entertainment to 50 percent of theamount of the expense that otherwise wouldbe allowable as a deduction. In the case ofany expenses for food or beverages con-sumed while away from home (within themeaning of § 162(a)(2)) by an individualduring, or incident to, the period of dutysubject to the hours of service limitationsof the Department of Transportation,§ 274(n)(3) gradually increases the deduct-ible percentage to 80 percent for taxableyears beginning in 2008. For taxable yearsbeginning in 2002, the deductible percent-age for these expenses is 65 percent.

.03 Section 274(d) provides, in part, thatno deduction shall be allowed under § 162for any traveling expense (including mealsand lodging while away from home) un-less the taxpayer complies with certain sub-stantiation requirements. The section furtherprovides that regulations may prescribe thatsome or all of the substantiation require-ments do not apply to an expense that doesnot exceed an amount prescribed by suchregulations.

.04 Section 1.274–5(g) of the regula-tions, in part, grants the Commissioner theauthority to prescribe rules relating to re-imbursement arrangements or per diem al-lowances for ordinary and necessaryexpenses paid or incurred while travelingaway from home. Pursuant to this grant ofauthority, the Commissioner may prescriberules under which such arrangements or al-lowances, if in accordance with reason-able business practice, will be regarded (1)as equivalent to substantiation, by adequaterecords or other sufficient evidence, of theamount of such travel expenses for pur-poses of § 1.274–5(c), and (2) as satisfy-ing the requirements of an adequateaccounting to the employer of the amountof such travel expenses for purposes of§ 1.274–5(f).

.05 For purposes of determining ad-justed gross income, § 62(a)(2)(A) allowsan employee a deduction for expenses al-lowed by Part VI (§ 161 and following),subchapter B, chapter 1 of the Code, paid

or incurred by the employee in connec-tion with the performance of services as anemployee under a reimbursement or otherexpense allowance arrangement with apayor.

.06 Section 62(c) provides that an ar-rangement will not be treated as a reim-bursement or other expense allowancearrangement for purposes of § 62(a)(2)(A)if it—

(1) does not require the employee tosubstantiate the expenses covered by the ar-rangement to the payor, or

(2) provides the employee with theright to retain any amount in excess of thesubstantiated expenses covered under the ar-rangement.Section 62(c) further provides that the sub-stantiation requirements described thereinshall not apply to any expense to the ex-tent that, under the grant of regulatory au-thority prescribed in § 274(d), theCommissioner has provided that substan-tiation is not required for such expense.

.07 Under § 1.62–2(c)(1) a reimburse-ment or other expense allowance arrange-ment satisfies the requirements of § 62(c)if it meets the requirements of business con-nection, substantiation, and returningamounts in excess of expenses as speci-fied in the regulations. Section 1.62–2(e)(2)specifically provides that substantiation ofcertain business expenses in accordancewith rules prescribed under the authority of§ 1.274–5(g) or 1.274–5(j) will be treatedas substantiation of the amount of such ex-penses for purposes of § 1.62–2. Under§ 1.62–2(f)(2), the Commissioner may pre-scribe rules under which an arrangementproviding per diem allowances will betreated as satisfying the requirement of re-turning amounts in excess of expenses, eventhough the arrangement does not require theemployee to return the portion of such anallowance that relates to days of travel sub-stantiated and that exceeds the amount ofthe employee’s expenses deemed substan-tiated pursuant to rules prescribed under§ 274(d), provided the allowance is rea-sonably calculated not to exceed the amountof the employee’s expenses or anticipatedexpenses and the employee is required toreturn any portion of such an allowance thatrelates to days of travel not substantiated.

.08 Section 1.62–2(h)(2)(i)(B) providesthat if a payor pays a per diem allowancethat meets the requirements of § 1.62–2(c)(1), the portion, if any, of the allow-

ance that relates to days of travelsubstantiated in accordance with § 1.62–2(e), that exceeds the amount of the em-ployee’s expenses deemed substantiated forsuch travel pursuant to rules prescribed un-der § 274(d) and § 1.274–5(g) or § 1.274–5(j), and that the employee is not requiredto return, is subject to withholding and pay-ment of employment taxes. See§§ 31.3121(a)–3, 31.3231(e)–1(a)(5),31.3306(b)–2, and 31.3401(a)–4 of the Em-ployment Tax Regulations. Because the em-ployee is not required to return this excessportion, the reasonable period of time pro-visions of § 1.62–2(g) (relating to the re-turn of excess amounts) do not apply to thisportion.

.09 Under § 1.62–2(h)(2)(i)(B)(4), theCommissioner may, in his or her discre-tion, prescribe special rules regarding thetiming of withholding and payment of em-ployment taxes on per diem allowances.

.10 Section 1.274–5(j)(1) grants theCommissioner the authority to establish amethod under which a taxpayer may electto use a specified amount for meals paid orincurred while traveling away from homein lieu of substantiating the actual cost ofmeals.

.11 The Internal Revenue Service in-tends to issue regulations pursuant to§ 274(d) granting the Commissioner the au-thority to establish a method under whicha taxpayer may elect to use a specifiedamount for incidental expenses paid or in-curred while traveling away from home inlieu of substantiating the actual cost of in-cidental expenses. The regulations are ex-pected to apply to incidental expenses paidor incurred after September 30, 2002.

.12 Sections 3.02, 4.04(5), and 5.06 pro-vide transition rules for the last 3 monthsof calendar year 2002 due to changes in theeffective date of the CONUS rates pub-lished by GSA.

.13 Section 3.02(3) of this revenue pro-cedure contains revisions to the defini-tion of incidental expenses.

.14 Section 4.03 of this revenue proce-dure contains revisions to the optionalmethod for substantiating meal and inci-dental expenses.

.15 Section 4.05 of this revenue proce-dure is added to provide a new optionalmethod for substantiating incidental ex-penses.

.16 Section 5.04 of this revenue proce-dure contains revisions to the list of high-

2002–41 I.R.B. 692 October 15, 2002

cost localities and to the high-low rates forpurposes of section 5.

.17 Section 7 of this revenue proce-dure is revised by renumbering section 7.07of Rev. Proc. 2001–47 as section 7.08 inthis revenue procedure; by renumbering sec-tion 7.08 of Rev. Proc. 2001–47 as sec-tion 7.10 in this revenue procedure; and byinserting sections 7.07 and 7.09 in this rev-enue procedure to describe the applica-tion of section 4.05 of this revenueprocedure.

SECTION 3. DEFINITIONS

.01 Per diem allowance. The term “perdiem allowance” means a payment undera reimbursement or other expense allow-ance arrangement that meets the require-ments specified in § 1.62–2(c)(1) and thatis —

(1) paid with respect to ordinary andnecessary business expenses incurred, orwhich the payor reasonably anticipates willbe incurred, by an employee for lodging,meal, and incidental expenses or for mealand incidental expenses for travel awayfrom home in connection with the perfor-mance of services as an employee of theemployer,

(2) reasonably calculated not to ex-ceed the amount of the expenses or the an-ticipated expenses, and

(3) paid at or below the applicablefederal per diem rate, a flat rate or statedschedule, or in accordance with any otherService-specified rate or schedule.

.02 Federal per diem rate and federalM&IE rate.

(1) General rule. The federal per diemrate is equal to the sum of the applicablefederal lodging expense rate and the ap-plicable federal meal and incidental ex-pense (M&IE) rate for the day and localityof travel.

(a) CONUS rates. The rates for lo-calities in the continental United States(“CONUS”) are set forth in Appendix A to41 C.F.R. ch. 301. However, in applyingsection 4.01, 4.02, or 4.03 of this revenueprocedure, taxpayers may continue to usethe CONUS rates in effect for the first 9months of 2002 for expenses of all CO-NUS travel away from home that are paidor incurred during calendar year 2002 inlieu of the updated GSA rates. A taxpayermust consistently use either these rates orthe updated rates for the period of Octo-ber 1, 2002, through December 31, 2002.

(b) OCONUS rates. The rates forlocalities outside the continental UnitedStates (“OCONUS”) are established by theSecretary of Defense (rates for non-foreignlocalities, including Alaska, Hawaii, Pu-erto Rico, the Northern Mariana Islands, andthe possessions of the United States) andby the Secretary of State (rates for for-eign localities), and are published in the PerDiem Supplement to the Standardized Regu-lations (Government Civilians, Foreign Ar-eas) (updated on a monthly basis).

(c) Internet access to the rates. TheCONUS and OCONUS rates may be foundon the Internet at www.policyworks.gov/perdiem.

(2) Locality of travel. The term “lo-cality of travel” means the locality wherean employee traveling away from home inconnection with the performance of ser-vices as an employee of the employer stopsfor sleep or rest.

(3) Incidental expenses.(a) Travel before January 1, 2003.

For travel away from home before Janu-ary 1, 2003, the term “incidental expenses”includes, but is not limited to, expenses forlaundry, cleaning and pressing of cloth-ing, and fees and tips for services, such asfor porters and baggage carriers. The term“incidental expenses” does not include taxi-cab fares, lodging taxes, or the costs of tele-grams or telephone calls.

(b) Travel after December 31, 2002.For travel away from home after Decem-ber 31, 2002, the term “incidental expenses”has the meaning given to it in the FederalTravel Regulations, 41 C.F.R. Part 300(2002). For example, the term “incidentalexpenses” includes fees and tips given toporters, baggage carriers, bellhops, hotelmaids, stewards or stewardesses and oth-ers on ships, and hotel servants in foreigncountries but does not include expenses forlaundry, cleaning and pressing of cloth-ing, lodging taxes, or the costs of tele-grams or telephone calls.

.03 Flat rate or stated schedule.(1) In general. Except as provided in

section 3.03(2) of this revenue procedure,an allowance is paid at a flat rate or statedschedule if it is provided on a uniform andobjective basis with respect to the expensesdescribed in section 3.01 of this revenueprocedure. Such allowance may be paidwith respect to the number of days awayfrom home in connection with the perfor-mance of services as an employee or on any

other basis that is consistently applied andin accordance with reasonable businesspractice. Thus, for example, an hourly pay-ment to cover meal and incidental expensespaid to a pilot or flight attendant who istraveling away from home in connectionwith the performance of services as an em-ployee is an allowance paid at a flat rateor stated schedule. Likewise, a paymentbased on the number of miles traveled (suchas cents per mile) to cover meal and inci-dental expenses paid to an over-the-roadtruck driver who is traveling away fromhome in connection with the performanceof services as an employee is an allow-ance paid at a flat rate or stated schedule.

(2) Limitation. For purposes of thisrevenue procedure, an allowance that iscomputed on a basis similar to that used incomputing the employee’s wages or othercompensation (such as the number of hoursworked, miles traveled, or pieces produced)does not meet the business connection re-quirement of § 1.62–2(d), is not a per diemallowance, and is not paid at a flat rate orstated schedule, unless, as of December 12,1989, (a) the allowance was identified bythe payor either by making a separate pay-ment or by specifically identifying theamount of the allowance, or (b) an allow-ance computed on that basis was com-monly used in the industry in which theemployee is employed. See § 1.62–2(d)(3)(ii).

SECTION 4. PER DIEM SUBSTAN-TIATION METHOD

.01 Per diem allowance. If a payor paysa per diem allowance in lieu of reimburs-ing actual expenses for lodging, meal, andincidental expenses incurred or to be in-curred by an employee for travel away fromhome, the amount of the expenses that isdeemed substantiated for each calendar dayis equal to the lesser of the per diem al-lowance for such day or the amount com-puted at the federal per diem rate (seesection 3.02 of this revenue procedure) forthe locality of travel for such day (or par-tial day, see section 6.04 of this revenueprocedure).

.02 Meals only per diem allowance. Ifa payor pays a per diem allowance only formeal and incidental expenses in lieu of re-imbursing actual expenses for meal and in-cidental expenses incurred or to be incurredby an employee for travel away from home,the amount of the expenses that is deemed

October 15, 2002 693 2002–41 I.R.B.

substantiated for each calendar day is equalto the lesser of the per diem allowance forsuch day or the amount computed at thefederal M&IE rate for the locality of travelfor such day (or partial day). A per diemallowance is treated as paid only for mealand incidental expenses if (1) the payor paysthe employee for actual expenses for lodg-ing based on receipts submitted to the payor,(2) the payor provides the lodging in kind,(3) the payor pays the actual expenses forlodging directly to the provider of the lodg-ing, (4) the payor does not have a reason-able belief that lodging expenses were orwill be incurred by the employee, or (5) theallowance is computed on a basis similarto that used in computing the employee’swages or other compensation (such as thenumber of hours worked, miles traveled, orpieces produced).

.03 Optional method for meals and in-cidental expenses only deduction. In lieu ofusing actual expenses in computing theamount allowable as a deduction for ordi-nary and necessary meal and incidental ex-penses paid or incurred for travel away fromhome, employees and self-employed indi-viduals who pay or incur meal expensesmay use an amount computed at the fed-eral M&IE rate for the locality of travel foreach calendar day (or partial day) the em-ployee or self-employed individual is awayfrom home. Such amount will be deemedsubstantiated for purposes of paragraphs(b)(2) and (c) of § 1.274–5, provided theemployee or self-employed individual sub-stantiates the elements of time, place, andbusiness purpose of the travel for that day(or partial day) in accordance with thoseregulations. See section 6.05(1) of this rev-enue procedure for rules related to the ap-plication of the limitation found in § 274(n)to amounts determined under this section4.03. See section 4.05 of this revenue pro-cedure for a method for incidental expensesthat may be used by employees or self-employed individuals who do not pay or in-cur meal expenses.

.04 Special rules for transportation in-dustry.

(1) In general. This section 4.04 ap-plies to (a) a payor that pays a per diem al-lowance only for meal and incidentalexpenses for travel away from home as de-scribed in section 4.02 of this revenue pro-cedure to an employee in the transportationindustry, or (b) an employee or self-employed individual in the transportation

industry who computes the amount allow-able as a deduction for meal and inciden-tal expenses for travel away from home inaccordance with section 4.03 of this rev-enue procedure.

(2) Rates. A taxpayer described in sec-tion 4.04(1) of this revenue procedure maytreat $40 as the federal M&IE rate for anyCONUS locality of travel, and $45 as thefederal M&IE rate for any OCONUS lo-cality of travel. A payor that uses either (orboth) of these special rates with respect toan employee must use the special rate(s) forall amounts subject to section 4.02 of thisrevenue procedure paid to that employee fortravel away from home within CONUSand/or OCONUS, as the case may be, dur-ing the calendar year. Similarly, an em-ployee or self-employed individual that useseither (or both) of these special rates mustuse the special rate(s) for all amounts com-puted pursuant to section 4.03 of this rev-enue procedure for travel away from homewithin CONUS and/or OCONUS, as thecase may be, during the calendar year. Seesection 4.04(5) of this revenue procedurefor transition rules.

(3) Periodic rule. A payor describedin section 4.04(1) of this revenue proce-dure may compute the amount of the em-ployee’s expenses that is deemedsubstantiated under section 4.02 of this rev-enue procedure periodically (not less fre-quently than monthly), rather than daily, bycomparing the total per diem allowance paidfor the period to the sum of the amountscomputed at the federal M&IE rate(s) forthe localities of travel for the days (or par-tial days) the employee is away from homeduring the period. For example, assume anemployee in the transportation industry trav-els away from home within CONUS on 17days (including partial days) during a cal-endar month and receives a per diem al-lowance only for meal and incidentalexpenses from a payor that uses the spe-cial rule under section 4.04(2) of this rev-enue procedure. The amount deemedsubstantiated under section 4.02 of this rev-enue procedure is equal to the lesser of thetotal per diem allowance paid for the monthor $680 (17 days at $40 per day).

(4) Transportation industry defined.For purposes of this section 4.04, an em-ployee or self-employed individual is “inthe transportation industry” only if the em-ployee’s or individual’s work (a) is of thetype that directly involves moving people

or goods by airplane, barge, bus, ship, train,or truck, and (b) regularly requires travelaway from home which, during any singletrip away from home, usually involvestravel to localities with differing federalM&IE rates. For purposes of the preced-ing sentence, a payor must determine thatan employee or a group of employees is “inthe transportation industry” by using amethod that is consistently applied and inaccordance with reasonable business prac-tice.

(5) Transition rules. Under thecalendar-year convention provided in sec-tion 4.04(2), a taxpayer who used the fed-eral M&IE rates during the first 9 monthsof calendar year 2002 to substantiate theamount of an individual’s travel expensesunder sections 4.02 or 4.03 of Rev. Proc.2001–47 may not use, for that individual,the special transportation industry rates pro-vided in this section 4.04 until January 1,2003. Similarly, a taxpayer who used thespecial transportation industry rates dur-ing the first 9 months of calendar year 2002to substantiate the amount of an individu-al’s travel expenses may not use, for thatindividual, the federal M&IE rates untilJanuary 1, 2003.

.05 Optional method for incidental ex-penses only deduction. In lieu of using ac-tual expenses in computing the amountallowable as a deduction for ordinary andnecessary incidental expenses paid or in-curred for travel away from home, em-ployees and self-employed individuals whodo not pay or incur meal expenses for a cal-endar day (or partial day) of travel awayfrom home may use an amount computedat the rate of $2 per day for each calen-dar day (or partial day) the employee orself-employed individual is away fromhome. Such amount will be deemed sub-stantiated for purposes of paragraphs (b)(2)and (c) of § 1.274–5, provided the em-ployee or self-employed individual sub-stantiates the elements of time, place, andbusiness purpose of the travel for that day(or partial day) in accordance with thoseregulations. See section 4.03 of this rev-enue procedure for a method that may beused by employees or self-employed indi-viduals who pay or incur meal expenses.The method authorized by this section 4.05may not be used by payors that use sec-tion 4.01, 4.02 or 5.01 of this revenue pro-cedure, or by employees or self-employedindividuals who use the method described

2002–41 I.R.B. 694 October 15, 2002

in section 4.03 of this revenue procedure.See section 6.05(4) of this revenue proce-dure for rules related to the application ofthe limitation found in § 274(n) to amountsdetermined under this section 4.05.

SECTION 5. HIGH-LOWSUBSTANTIATION METHOD

.01 General rule. If a payor pays a perdiem allowance in lieu of reimbursing ac-tual expenses for lodging, meal, and inci-dental expenses incurred or to be incurredby an employee for travel away from homeand the payor uses the high-low substan-tiation method described in this section 5for travel within CONUS, the amount of theexpenses that is deemed substantiated foreach calendar day is equal to the lesser ofthe per diem allowance for such day or the

amount computed at the rate set forth insection 5.02 of this revenue procedure forthe locality of travel for such day (or par-tial day, see section 6.04 of this revenueprocedure). Except as provided in section5.06 of this revenue procedure, this high-low substantiation method may be used inlieu of the per diem substantiation methodprovided in section 4.01 of this revenue pro-cedure, but may not be used in lieu of themeals only substantiation method providedin section 4.02 or 4.03 of this revenue pro-cedure.

.02 Specific high-low rates. Except asprovided in section 5.06 of this revenue pro-cedure, the per diem rate set forth in thissection 5.02 is $204 for travel to any “high-cost locality” specified in section 5.03 ofthis revenue procedure, or $125 for travel

to any other locality within CONUS.Whichever per diem rate applies, it is ap-plied as if it were the federal per diem ratefor the locality of travel. For purposes ofapplying the high-low substantiation methodand the § 274(n) limitation on meal ex-penses (see section 6.05 of this revenue pro-cedure), the federal M&IE rate shall betreated as $45 for a high-cost locality and$35 for any other locality within CONUS.

.03 High-cost localities. The followinglocalities have a federal per diem rate of$165 or more, and are high-cost localitiesfor all of the calendar year or the portionof the calendar year specified in parenthe-sis under the key city name, except as pro-vided in section 5.06 of this revenueprocedure:

Key City County or other defined location

CaliforniaNapa Napa

(April 1–November 15)Palm Springs Riverside

(January 1–May 31)San Francisco San FranciscoSan Mateo/Redwood City San MateoSanta Monica City limits of Santa Monica

(June 1–September 30)Sunnyvale/Palo Alto/San Jose Santa ClaraTahoe City Placer

ColoradoAspen Pitkin

(January 1–April 30)Silverthorne/Keystone SummitTelluride San Miguel

(December 20–September 30)Vail Eagle

(December 1–March 31)

District of ColumbiaWashington, D.C.

Washington, D.C. (also the cities of Alexandria, Fairfax, and FallsChurch, and the counties of Arlington, Fairfax, and Loudoun,in Virginia; and the counties of Montgomery and Prince George’sin Maryland)

FloridaKey West Monroe

(January 1–April 30)

October 15, 2002 695 2002–41 I.R.B.

Key City County or other defined locationIdaho

Sun Valley City limits of Sun Valley

IllinoisChicago Cook and Lake

LouisianaNew Orleans/St. Bernard Orleans, St. Bernard

(January 1–May 31) Plaquemine, andJefferson Par-ishes

MaineKennebunk/Kittery/Sanford York

(June 15–October 31)

Maryland(For the counties of Montgomery andPrince George’s, seeDistrict of Columbia)Baltimore BaltimoreOcean City Worcester

(June 15–October 31)

MassachusettsBoston SuffolkCambridge Middlesex (except Lowell)Martha’s Vineyard Dukes

(June 1–October 15)Nantucket Nantucket

(June 15–October 15)

MichiganMackinac Island MackinacTraverse City Grand Traverse

MontanaBig Sky Gallatin (except West Yellowstone)

NevadaStateline Douglas

New JerseyAtlantic City Atlantic

(June 1–November 30)Cape May Cape May (except Ocean City)

(June 1–November 30)Edison Middlesex (except Piscataway)Newark Essex, Bergen, Hudson and PassaicOcean City City limits of Ocean City

(June 15–September 15)Piscataway/Belle Mead Somerset; and the city limits of Piscataway

2002–41 I.R.B. 696 October 15, 2002

Key City County or other defined location

Princeton/Trenton Mercer

New YorkThe Bronx/Brooklyn/Queens The boroughs of The Bronx, Brooklyn, and QueensManhattan The borough of ManhattanNassau County/Great Neck NassauStaten Island RichmondSuffolk County SuffolkWhite Plains City limits of White Plains

PennsylvaniaHershey City limits of Hershey

(June 1–September 15)King of Prussia/Ft. Washington/Bala Cynwyd Montgomery

(April 1–November 30)Philadelphia Philadelphia

UtahOgden/Layton/Davis County Weber and Davis

(January 15–February 28)Park City Summit

(December 15–March 31)Provo Utah

(January 15–February 28)Salt lake City Salt Lake, Dugway Proving Ground, and Tooele Army Depot

(January 15–February 28)

Virginia(For the cities of Alexandria, Fairfax, and Falls Church, and the counties of Arlington, Fairfax, and Loudoun, see Dis-trict of Columbia)Wintergreen Nelson

WashingtonSeattle King

.04 Changes in high-cost localities. Thelist of high-cost localities in section 5.03 ofthis revenue procedure differs from the listof high-cost localities in section 5.03 of Rev.Proc. 2001–47.

(1) The following localities (listed bykey cities) have been added to the list ofhigh-cost localities: Santa Monica, Cali-fornia; Baltimore, Maryland; Staten Is-land, New York; King of Prussia/Ft.Washington/Bala Cynwyd, Pennsylvania;Philadelphia, Pennsylvania; and Seattle,Washington.

(2) The portion of the year for whichthe following is a high-cost locality (listedby key city) has been changed: Ogden/Layton/Davis County, Utah.

(3) The following locality has been re-moved from the list of high-cost localities:Palm Beach, Florida.

.05 Specific limitation.(1) Except as provided in section

5.05(2) of this revenue procedure, a payorthat uses the high-low substantiation methodwith respect to an employee must use thatmethod for all amounts paid to that em-ployee for travel away from home withinCONUS during the calendar year. See sec-tion 5.06 of this revenue procedure for tran-sition rules.

(2) With respect to an employee de-scribed in section 5.05(1) of this revenueprocedure, the payor may reimburse ac-tual expenses or use the meals only per

diem method described in section 4.02 ofthis revenue procedure for any travel awayfrom home, and may use the per diem sub-stantiation method described in section 4.01of this revenue procedure for any OCO-NUS travel away from home.

.06 Transition rules. A payor who usedthe substantiation method of section 4.01of Rev. Proc. 2001–47 for an employee dur-ing the first 9 months of calendar year 2002may not use the High-Low SubstantiationMethod in section 5 of this revenue pro-cedure for that employee until January 1,2003. A payor who used the High-LowSubstantiation Method of section 5 of Rev.Proc. 2001–47 for an employee during thefirst 9 months of calendar year 2002 must

October 15, 2002 697 2002–41 I.R.B.

continue to use the High-Low Substantia-tion Method for the remainder of calen-dar year 2002 for that employee. A payordescribed in the previous sentence may usethe rates and high-cost localities publishedin section 5 of Rev. Proc. 2001–47, in lieuof the updated rates and high-cost locali-ties provided in section 5 of this revenueprocedure, for travel on or after October 1,2002, and before January 1, 2003, if thoserates and localities are used consistently dur-ing this period for all employees reim-bursed under this method.

SECTION 6. LIMITATIONS ANDSPECIAL RULES

.01 In general. The federal per diem rateand the federal M&IE rate described in sec-tion 3.02 of this revenue procedure for thelocality of travel will be applied in the samemanner as applied under the Federal TravelRegulations, 41 C.F.R. Part 301–11 (2002),except as provided in sections 6.02 through6.04 of this revenue procedure.

.02 Federal per diem rate. A receipt forlodging expenses is not required in deter-mining the amount of expenses deemedsubstantiated under section 4.01 or 5.01 ofthis revenue procedure. See section 7.01 ofthis revenue procedure for the require-ment that the employee substantiate thetime, place, and business purpose of the ex-pense.

.03 Federal per diem or M&IE rate. Apayor is not required to reduce the fed-eral per diem rate or the federal M&IE ratefor the locality of travel for meals pro-vided in kind, provided the payor has a rea-sonable belief that meal and incidentalexpenses were or will be incurred by theemployee during each day of travel.

.04 Proration of the federal per diem orM&IE rate. Pursuant to the Federal TravelRegulations, in determining the federal perdiem rate or the federal M&IE rate for thelocality of travel, the full applicable fed-eral M&IE rate is available for a full dayof travel from 12:01 a.m. to 12:00 mid-night. The method described in section6.04(1) of this revenue procedure must beused for purposes of determining theamount deemed substantiated under sec-tion 4.03 or 4.05 of this revenue proce-dure for partial days of travel away fromhome. For purposes of determining theamount deemed substantiated under sec-tion 4.01, 4.02, 4.04 or 5 of this revenueprocedure for partial days of travel away

from home, either of the following meth-ods may be used to prorate the federalM&IE rate to determine the federal perdiem rate or the federal M&IE rate for thepartial days of travel:

(1) The rate may be prorated using themethod prescribed by the Federal TravelRegulations. Currently the Federal TravelRegulations allow three-fourths of the ap-plicable federal M&IE rate for each par-tial day during which the employee or self-employed individual is traveling away fromhome in connection with the performanceof services as an employee or self-employedindividual. The same ratio may be appliedto prorate the allowance for incidental ex-penses described in section 4.05 of this rev-enue procedure; or

(2) The rate may be prorated usingany method that is consistently applied andin accordance with reasonable businesspractice. For example, if an employee trav-els away from home from 9 a.m. one dayto 5 p.m. the next day, a method of pro-ration that results in an amount equal to twotimes the federal M&IE rate will be treatedas being in accordance with reasonable busi-ness practice (even though only one and ahalf times the federal M&IE rate would beallowed under the Federal Travel Regula-tions).

.05 Application of the appropriate§ 274(n) limitation on meal expenses. Ex-cept as provided in section 6.05(4), all orpart of the amount of an expense deemedsubstantiated under this revenue proce-dure is subject to the appropriate limita-tion under § 274(n) (see section 2.02 of thisrevenue procedure) on the deductibility offood and beverage expenses.

(1) When an amount for meal and in-cidental expenses is computed pursuant tosection 4.03 of this revenue procedure, thetaxpayer must treat such amount as an ex-pense for food and beverages.

(2) When a per diem allowance is paidonly for meal and incidental expenses, thepayor must treat an amount equal to thelesser of the allowance or the federal M&IErate for the locality of travel for such day(or partial day, see section 6.04 of this rev-enue procedure) as an expense for food andbeverages.

(3) When a per diem allowance is paidfor lodging, meal, and incidental expenses,the payor must treat an amount equal to thefederal M&IE rate for the locality of travelfor each calendar day (or partial day) the

employee is away from home as an ex-pense for food and beverages. For pur-poses of the preceding sentence, when a perdiem allowance for lodging, meal, and in-cidental expenses is paid at a rate that is lessthan the federal per diem rate for the lo-cality of travel for such day (or partial day),the payor may treat an amount equal to 40percent of such allowance as the federalM&IE rate for the locality of travel for suchday (or partial day).

(4) When an amount for incidental ex-penses is computed under section 4.05 ofthis revenue procedure, none of the amountso computed is subject to limitation un-der § 274(n) on the deductibility of food andbeverage expenses.

.06 No double reimbursement or deduc-tion. If a payor pays a per diem allow-ance in lieu of reimbursing actual expensesfor lodging, meal, and incidental expensesor for meal and incidental expenses in ac-cordance with section 4 or 5 of this rev-enue procedure, any additional paymentwith respect to such expenses is treated aspaid under a nonaccountable plan, is in-cluded in the employee’s gross income, isreported as wages or other compensation onthe employee’s Form W–2, and is subjectto withholding and payment of employ-ment taxes. Similarly, if an employee orself-employed individual computes theamount allowable as a deduction for mealand incidental expenses for travel awayfrom home in accordance with section 4.03or 4.04 of this revenue procedure, no otherdeduction is allowed to the employee orself-employed individual with respect tosuch expenses. For example, assume an em-ployee receives a per diem allowance froma payor for lodging, meal, and incidentalexpenses or for meal and incidental ex-penses incurred while traveling away fromhome. During that trip, the employee paysfor dinner for the employee and two busi-ness associates. The payor reimburses as abusiness entertainment meal expense themeal expense for the employee and the twobusiness associates. Because the payor alsopays a per diem allowance to cover the costof the employee’s meals, the amount paidby the payor for the employee’s portion ofthe business entertainment meal expense istreated as paid under a nonaccountable plan,is reported as wages or other compensa-tion on the employee’s Form W–2, and issubject to withholding and payment of em-ployment taxes.

2002–41 I.R.B. 698 October 15, 2002

.07 Related parties. Sections 4.01 and 5of this revenue procedure will not apply inany case in which a payor and an employeeare related within the meaning of § 267(b),but for this purpose the percentage of own-ership interest referred to in § 267(b)(2)shall be 10 percent.

SECTION 7. APPLICATION

.01 If the amount of travel expenses isdeemed substantiated under the rules pro-vided in section 4 or 5 of this revenue pro-cedure, and the employee actuallysubstantiates to the payor the elements oftime, place, and business purpose of thetravel for that day (or partial day) in ac-cordance with paragraphs (b)(2) and (c)(other than subparagraph (2)(iii)(A) thereof)of § 1.274–5, the employee is deemed tosatisfy the adequate accounting require-ments of § 1.274–5(f) as well as the re-quirement to substantiate by adequaterecords or other sufficient evidence for pur-poses of § 1.274–5(c). See § 1.62–2(e)(1)for the rule that an arrangement must re-quire business expenses to be substanti-ated to the payor within a reasonable periodof time.

.02 An arrangement providing per diemallowances will be treated as satisfying therequirement of § 1.62–2(f)(2) with respectto returning amounts in excess of expensesif the employee is required to return withina reasonable period of time (as defined in§ 1.62–2(g)) any portion of such an allow-ance that relates to days of travel not sub-stantiated, even though the arrangementdoes not require the employee to return theportion of such an allowance that relates todays of travel substantiated and that ex-ceeds the amount of the employee’s ex-penses deemed substantiated. For example,assume a payor provides an employee anadvance per diem allowance for meal andincidental expenses of $200, based on ananticipated 5 days of business travel at $40per day to a locality for which the federalM&IE rate is $34, and the employee sub-stantiates 3 full days of business travel. Therequirement to return excess amounts willbe treated as satisfied if the employee is re-quired to return within a reasonable pe-riod of time (as defined in § 1.62–2(g)) theportion of the allowance that is attribut-able to the 2 unsubstantiated days of travel($80), even though the employee is not re-quired to return the portion of the allow-ance ($18) that exceeds the amount of the

employee’s expenses deemed substanti-ated under section 4.02 of this revenue pro-cedure ($102) for the 3 substantiated daysof travel. However, the $18 excess por-tion of the allowance is treated as paid un-der a nonaccountable plan as discussed insection 7.04 of this revenue procedure.

.03 An employee is not required to in-clude in gross income the portion of a perdiem allowance received from a payor thatis less than or equal to the amount deemedsubstantiated under the rules provided insection 4 or 5 of this revenue procedure ifthe employee substantiates the businesstravel expenses covered by the per diem al-lowance in accordance with section 7.01 ofthis revenue procedure. See § 1.274–5(f)(2)(i). In addition, such portion of theallowance is treated as paid under an ac-countable plan, is not reported as wages orother compensation on the employee’s FormW–2, and is exempt from the withhold-ing and payment of employment taxes. See§ 1.62–2(c)(2) and (c)(4).

.04 An employee is required to includein gross income only the portion of the perdiem allowance received from a payor thatexceeds the amount deemed substantiatedunder the rules provided in section 4 or 5of this revenue procedure if the employeesubstantiates the business travel expensescovered by the per diem allowance in ac-cordance with section 7.01 of this rev-enue procedure. See § 1.274–5(f)(2)(ii). Inaddition, the excess portion of the allow-ance is treated as paid under a nonaccount-able plan, is reported as wages or othercompensation on the employee’s FormW–2, and is subject to withholding and pay-ment of employment taxes. See § 1.62–2(c)(3)(ii), (c)(5), and (h)(2)(i)(B).

.05 If the amount of the expenses thatis deemed substantiated under the rules pro-vided in section 4.01, 4.02, or 5 of this rev-enue procedure is less than the amount ofthe employee’s business expenses for travelaway from home, the employee may claiman itemized deduction for the amount bywhich the business travel expenses ex-ceed the amount that is deemed substanti-ated, provided the employee substantiatesall the business travel expenses, includes onForm 2106, Employee Business Expenses,the deemed substantiated portion of the perdiem allowance received from the payor,and includes in gross income the portion (ifany) of the per diem allowance receivedfrom the payor that exceeds the amount

deemed substantiated. See § 1.274–5(f)(2)(iii). However, for purposes of claim-ing this itemized deduction with respect tomeal and incidental expenses, substantia-tion of the amount of the expenses is notrequired if the employee is claiming a de-duction that is equal to or less than theamount computed under section 4.03 of thisrevenue procedure minus the amountdeemed substantiated under sections 4.02and 7.01 of this revenue procedure. Theitemized deduction is subject to the appro-priate limitation (see section 2.02 of thisrevenue procedure) on meal and entertain-ment expenses provided in § 274(n) and the2-percent floor on miscellaneous item-ized deductions provided in § 67.

.06 An employee who pays or incursamounts for meal expenses and does not re-ceive a per diem allowance for meal andincidental expenses may deduct an amountcomputed pursuant to section 4.03 of thisrevenue procedure only as an itemized de-duction. This itemized deduction is sub-ject to the appropriate limitation on mealand entertainment expenses provided in§ 274(n) and the 2-percent floor on mis-cellaneous itemized deductions provided in§ 67. See section 7.07 of this revenue pro-cedure for the treatment of an employeewho does not pay or incur amounts for mealexpenses and does not receive a per diemallowance for incidental expenses.

.07 An employee who does not pay orincur amounts for meal expenses and doesnot receive a per diem allowance for inci-dental expenses may deduct an amountcomputed pursuant to section 4.05 of thisrevenue procedure only as an itemized de-duction. This itemized deduction is sub-ject to the 2-percent floor on miscellaneousitemized deductions provided in § 67. Seesection 7.06 of this revenue procedure forthe treatment of an employee who pays orincurs amounts for meal expenses and doesnot receive a per diem allowance for mealand incidental expenses.

.08 A self-employed individual who paysor incurs meal expenses for a calendar day(or partial day) of travel away from homemay deduct an amount computed pursu-ant to section 4.03 of this revenue proce-dure in determining adjusted gross incomeunder § 62(a)(1). This deduction is sub-ject to the appropriate limitation on mealand entertainment expenses provided in§ 274(n).

October 15, 2002 699 2002–41 I.R.B.

.09 A self-employed individual who doesnot pay or incur meal expenses for a cal-endar day (or partial day) of travel awayfrom home may deduct an amount com-puted pursuant to section 4.05 of this rev-enue procedure in determining adjustedgross income under § 62(a)(1).

.10 If a payor’s reimbursement or otherexpense allowance arrangement evidencesa pattern of abuse of the rules of § 62(c) andthe regulations thereunder, all payments un-der the arrangement will be treated as madeunder a nonaccountable plan. Thus, suchpayments are included in the employee’sgross income, are reported as wages or othercompensation on the employee’s FormW–2, and are subject to withholding andpayment of employment taxes. See § 1.62–2(c)(3), (c)(5), and (h)(2).

SECTION 8. WITHHOLDING ANDPAYMENT OF EMPLOYMENT TAXES

.01 The portion of a per diem allow-ance, if any, that relates to the days of busi-ness travel substantiated and that exceedsthe amount deemed substantiated for thosedays under section 4.01, 4.02, or 5 of thisrevenue procedure is subject to withhold-ing and payment of employment taxes. See§ 1.62–2(h)(2)(i)(B).

.02 In the case of a per diem allow-ance paid as a reimbursement, the excessdescribed in section 8.01 of this revenueprocedure is subject to withholding and pay-ment of employment taxes in the payroll pe-riod in which the payor reimburses theexpenses for the days of travel substanti-ated. See § 1.62–2(h)(2)(i)(B)(2).

.03 In the case of a per diem allow-ance paid as an advance, the excess de-scribed in section 8.01 of this revenueprocedure is subject to withholding and pay-ment of employment taxes no later than thefirst payroll period following the payroll pe-riod in which the days of travel with re-spect to which the advance was paid aresubstantiated. See § 1.62–2(h)(2)(i)(B)(3).If some or all of the days of travel with re-spect to which the advance was paid are notsubstantiated within a reasonable period oftime and the employee does not return theportion of the allowance that relates to thosedays within a reasonable period of time, theportion of the allowance that relates to thosedays is subject to withholding and pay-ment of employment taxes no later than thefirst payroll period following the end of thereasonable period. See § 1.62–2(h)(2)(i)(A).

.04 In the case of a per diem allow-ance only for meal and incidental expensesfor travel away from home paid to an em-ployee in the transportation industry by apayor that uses the rule in section 4.04(3)of this revenue procedure, the excess of theper diem allowance paid for the period overthe amount deemed substantiated for the pe-riod under section 4.02 of this revenue pro-cedure (after applying section 4.04(3) of thisrevenue procedure), is subject to withhold-ing and payment of employment taxes nolater than the first payroll period follow-ing the payroll period in which the ex-cess is computed. See § 1.62–2(h)(2)(i)(B)(4).

.05 For example, assume that an em-ployer pays an employee a per diem al-lowance to cover business expenses formeals and lodging for travel away fromhome at a rate of 120 percent of the fed-eral per diem rate for the localities to whichthe employee travels. The employer doesnot require the employee to return the 20percent by which the reimbursement forthose expenses exceeds the federal per diemrate. The employee substantiates 6 days oftravel away from home: 2 days in a local-ity in which the federal per diem rate is$100 and 4 days in a locality in which thefederal per diem rate is $125. The em-ployer reimburses the employee $840 forthe 6 days of travel away from home (2 x(120% x $100) + 4 x (120% x $125)), anddoes not require the employee to return theexcess payment of $140 (2 days x $20($120-$100) + 4 days x $25 ($150-$125)).For the payroll period in which the em-ployer reimburses the expenses, the em-ployer must withhold and pay employmenttaxes on $140. See section 8.02 of this rev-enue procedure.

SECTION 9. EFFECT ON OTHERDOCUMENTS

Rev. Proc. 2001–47 is hereby super-seded (except to the extent specified in sec-tions 4.04(5) and 5.06 of this revenueprocedure) for per diem allowances that arepaid both (1) to an employee on or afterOctober 1, 2002, and (2) with respect tolodging, meal, and incidental expenses orwith respect to meal and incidental ex-penses paid or incurred for travel away fromhome on or after October 1, 2002. Rev.Proc. 2001–47 is also hereby superseded(except to the extent specified in section4.04(5) of this revenue procedure) for pur-

poses of computing the amount allowableas a deduction for meal and incidental ex-penses or for incidental expenses only paidor incurred by an employee or self-employed individual for travel away fromhome on or after October 1, 2002.

DRAFTING INFORMATION

The principal author of this revenue pro-cedure is John P. Moriarty, of the Office ofAssociate Chief Counsel (Income Tax andAccounting). For further information re-garding this revenue procedure, contactMr. Moriarty at (202) 622–4930 (not a toll-free call).

26 CFR 601.204: Changes in accounting periods

and in methods of accounting.

(Also Part I, §§ 446, 481; 1.446–1, 1.481–1.)

Rev. Proc. 2002–65

CONTENTS

SECTION 1. PURPOSE

SECTION 2. BACKGROUND

SECTION 3. SCOPE

SECTION 4. DEFINITIONS

.01 Track Structure

.02 Track Structure Expenditures

.03 Current Additions

.04 New Track Structure

.05 Assigned Value of Relay Materials

.06 Operating Items

.07 Salvage Material Credits

.08 Removal Costs

SECTION 5. TRACK MAINTENANCEALLOWANCE METHOD FOR CLASSII AND III RAILROADS

.01 In General

.02 Track Maintenance Allowance

.03 Capitalized Amount

.04 Example(1) Facts(2) Track maintenance allowance(3) Capitalized Amount

SECTION 6. CHANGE IN METHODOF ACCOUNTING

.01 In General

.02 Issue Not Under Consideration

.03 Issue Under Consideration

2002–41 I.R.B. 700 October 15, 2002

.04 Special Rule for Certain Taxpay-ers with Issue Under Consideration

.05 Special Rule for Taxpayers Reclas-sified as Class I Railroads

.06 Changes Not Made under this Rev-enue Procedure

SECTION 7. RECORD KEEPING

SECTION 8. OPTIONALSETTLEMENT FOR TAXPAYERSUNDER EXAMINATION, BEFORE ANAREA APPEALS OFFICE, ORBEFORE THE TAX COURT

.01 In General

.02 Terms of Settlement

.03 Procedures for Requesting the Settle-ment(1) Initiating the request(2) Statement of facts, law, and ar-

guments(3) Perjury statement

.04 Procedures for Processing the Re-quest(1) Receipt of request acknowledged(2) Factual development(3) Acceptance(4) Notification of acceptance

.05 Procedures for Implementing theSettlement(1) Closing agreement or other ap-

propriate settlement agreementrequired

(2) Contents of closing agreement orother appropriate settlementagreement

(3) Review and execution of clos-ing agreement or other appropri-ate settlement agreement

(4) Amended returns(5) Application of Rev. Proc. 2002–18

.06 Effect on Other Offices of the Ser-vice

SECTION 9. EFFECTIVE DATE

SECTION 10. EFFECT ON OTHERDOCUMENTS

DRAFTING INFORMATION

APPENDIX

SECTION 1. PURPOSE

This revenue procedure provides a safeharbor method of accounting for track struc-ture expenditures paid or incurred by aClass II or Class III railroad (“track main-

tenance allowance method”). This rev-enue procedure also provides procedures fora qualifying taxpayer to obtain automaticconsent from the Commissioner of Inter-nal Revenue to change to the track main-tenance allowance method, including rulesrelating to the limitations, terms, and con-ditions the Commissioner deems neces-sary to make the change. In addition, thisrevenue procedure provides an optional pro-cedure for a qualifying taxpayer whosetreatment of track structure expenditures isan issue under consideration in examina-tion, before an area appeals office, or be-fore the United States Tax Court (“TaxCourt”) to settle open taxable years usingthe track maintenance allowance method.

SECTION 2. BACKGROUND

.01 Under § 446(b) of the Internal Rev-enue Code, the Commissioner has broad au-thority to determine whether a method ofaccounting clearly reflects income. If a tax-payer’s method of accounting does notclearly reflect income, the computation oftaxable income must be made under amethod that, in the opinion of the Secre-tary, does clearly reflect income. See ThorPower Tool Co. v. Commissioner, 439 U.S.522 (1979); Commissioner v. Hansen, 360U.S. 446 (1959); § 1.446–1(c)(2)(ii) of theIncome Tax Regulations.

.02 Section 446(e) and § 1.446–1(e) pro-vide that, except as otherwise provided, ataxpayer must secure the consent of theCommissioner before changing a method ofaccounting for federal income tax pur-poses. Section 1.446–1(e)(3)(ii) autho-rizes the Commissioner to prescribeadministrative procedures setting forth thelimitations, terms, and conditions deemednecessary to permit a taxpayer to obtainconsent to change a method of account-ing.

.03 Rev. Proc. 2002–18, 2002–13 I.R.B.678, provides the procedures under § 446(b)and § 1.446–1(b) for changes in method ofaccounting imposed by the Internal Rev-enue Service. Rev. Proc. 2002–18 also pro-vides the procedures that the Service willuse for accounting method issues resolvedby the Service on a nonaccounting-method-change basis.

.04 A railroad incurs track structure ex-penditures as a result of performing vari-ous activities to acquire, construct, maintain,repair, and improve track structure. To mini-mize disputes regarding the accounting for

these track structure expenditures, the Ser-vice will permit a railroad that complieswith the requirements of this revenue pro-cedure to account for track structure ex-penditures using the track maintenanceallowance method described in section 5 ofthis revenue procedure.

SECTION 3. SCOPE

This revenue procedure applies to a tax-payer that chooses to account for trackstructure expenditures under the method de-scribed in section 5 of this revenue proce-dure, and that meets the followingrequirements: 1) the taxpayer is a Class IIor Class III railroad as designated by theSurface Transportation Board, in accor-dance with 49 C.F.R. Part 1201 1–1; and2) the taxpayer does not file, and is not amember of a combined reporting group thatfiles, a Railroad Annual Report R–1 (“FormR–1”) with the Surface TransportationBoard.

SECTION 4. DEFINITIONS

The following definitions apply solelyfor purposes of this revenue procedure:

.01 Track Structure. “Track structure”means the combination of a taxpayer’s railand other track material (OTM), ties, andballast, which provides a track for rail carsand equipment powered by locomotives.

.02 Track Structure Expenditures. “Trackstructure expenditures” for a particular tax-able year are the sum of the taxpayer’s ex-penditures for that year for current additions(including new track structure), operatingitems, and removal costs.

.03 Current Additions. “Current addi-tions” are the amounts included in trackstructure expenditures that represent capi-tal additions to the taxpayer’s track struc-ture for financial reporting purposes and thatare taken into account for federal incometax purposes (see, e.g., §§ 404 and 461).Thus, for example, current additions do notinclude the assigned value of relay mate-rials.

.04 New Track Structure. “New trackstructure” means the amounts included intrack structure expenditures that reflect thetaxpayer’s expenditures for (1) track struc-ture laid where none previously existed; (2)existing track structure acquired by the tax-payer; or (3) track structure previously aban-doned by the taxpayer that must berehabilitated or improved to make it suit-

October 15, 2002 701 2002–41 I.R.B.

able for the use intended by the taxpayer,that are taken into account for federal in-come tax purposes. New track structure in-cludes the cost of acquiring and installingnew track structure as well as the cost ofany rehabilitation or improvement neces-sary to put newly acquired or previouslyabandoned track structure into operation.New track structure does not include anyremoval costs.

.05 Assigned Value of Relay Materi-als. The “assigned value of relay materi-als” means the amounts that reflect thetaxpayer’s fair market value adjustments(excluding rewelding and other process-ing costs) for track materials relaid that werepreviously retired for financial reporting pur-poses. The assigned value of relay mate-rials does not include relay track materialspurchased by the taxpayer.

.06 Operating Items. “Operating items”are the amounts included in track struc-ture expenditures that represent expendi-tures for track structure that are deductedfor financial reporting purposes and that aretaken into account for federal income taxpurposes. Thus, for example, operatingitems do not include salvage material cred-its or the assigned value of relay materi-als.

.07 Salvage Material Credits. “Salvagematerial credits” means the amounts that re-flect credits for the value of salvaged ma-terials.

.08 Removal Costs. “Removal costs”means the amount included in track struc-ture expenditures that represents the tax-payer’s expenditures for track removal forfinancial reporting purposes not already in-cluded in current additions or operatingitems and that are taken into account forfederal income tax purposes.

SECTION 5. TRACK MAINTENANCEALLOWANCE METHOD FOR CLASSII AND III RAILROADS

.01 In General. Under the track main-tenance allowance method, the taxpayermust determine the amount of its trackstructure expenditures that may be cur-rently deducted under section 5.02 of thisrevenue procedure (the track maintenanceallowance) and the amount required to becapitalized under section 5.03 of this rev-enue procedure (the capitalized amount). Ataxpayer that uses the track maintenance al-lowance method described in this section5 must use that method for all of its trackstructure expenditures.

.02 Track Maintenance Allowance. Thetrack maintenance allowance for a particu-lar taxable year under the track mainte-nance allowance method is determined asfollows:

(1) Determine the track structure ex-penditures for the taxable year;

(2) Subtract from the track structureexpenditures in (1) new track structure; and

(3) Multiply the resulting amount in(2) by 75 percent.

.03 Capitalized Amount. The capital-ized amount for the taxable year under thetrack maintenance allowance method is de-termined as follows:

(1) Determine the track structure ex-penditures for the taxable year (see sec-tion 5.02(1));

(2) Subtract from the track structureexpenditures in (1) the track maintenanceallowance determined under section 5.02 forthe taxable year to determine the capitaltrack structure expenditures;

(3) Allocate the capital track struc-ture expenditures determined in (2) to eachtrack account (Rail and OTM, Ties, andBallast) first to new track to the extent ofthe new track structure for each track ac-count. The remaining capitalized amount

represents replacement track and should beallocated to each track account in propor-tion to adjusted current additions (i.e., cur-rent additions for each track account afterexcluding the amount allocated to new trackfrom each account). If after allocating thecapital track structure expenditures to newtrack there are no adjusted current addi-tions, the remaining capitalized amount mustbe allocated to each track account in pro-portion to the ending book account bal-ance in each track capital account for thetaxable year. For purposes of determiningbasis, the amounts allocated to each trackaccount must be allocated further to the as-sets within each account using any reason-able method;

(4) For each track account, apply thetaxpayer’s method of accounting for uni-form capitalization, as governed by § 263Aand the regulations thereunder, to theamounts capitalized to new track and to re-placement track (i.e., the amounts deter-mined in (3)) to determine the additional§ 263A costs (as defined in § 1.263A–1(d)(3)), and, if applicable, interest costs,that must be capitalized;

(5) For each track account, add theamounts capitalized to new track and to re-placement track in (3) to the § 263A costsand interest costs determined in (4) to de-termine the total capitalized amount;

(6) For each track account, treat thetotal capitalized amount determined in (5)as a capital expenditure and depreciate thatamount in accordance with § 167 and theregulations thereunder..04 Example.

(1) Facts. X is a railroad that ownsand maintains track structure in the UnitedStates. X uses a calendar year for tax pur-poses. For the year ending December 31,2001, X treats the following amounts ascapital additions to its track structure for fi-nancial reporting purposes:

Ties $1,180,000Rail & OTM 370,000Ballast 600,000Total $2,150,000

2002–41 I.R.B. 702 October 15, 2002

Included in this amount are:

New track structure Ties $150,000Rail & OTM $250,000Ballast $100,000Total $500,000

Assigned value of relay materials Ties $ 30,000Rail & OTM $120,000Ballast $ 0Total $150,000

All of these amounts are taken into account for federal income tax purposes in the taxable year ended December 31, 2001, exceptfor the assigned value of relay materials. Thus, X’s current additions for the taxable year ending December 31, 2001, are $2,000,000($2,150,000 – $150,000).

For the same taxable year, X has expenditures for its track structure that are deducted for financial reporting purposes in the amountof $2,250,000.

Included in this amount are:

Salvage material credits ($50,000)Assigned value of relay materials $100,000

All of X’s expenditures for track struc-ture that are deducted for financial report-ing purposes are taken into account forfederal income tax purposes in the tax-able year ended December 31, 2001, ex-cept for the salvage material credits and theassigned value of relay materials. Thus, X’s

operating items for the taxable year endedDecember 31, 2001, are $2,200,000($2,250,000 + $50,000 – $100,000). For thetaxable year ended December 31, 2001, Xincurred removal costs in the amount of$300,000, which were not included in cur-rent additions or operating items, but which

are taken into account for federal incometax purposes in that year.

(2) Track maintenance allowance. To de-termine the track maintenance allowance forthe taxable year ended December 31, 2001,X first determines its track structure ex-penditures, as follows:

$2,000,000 current additions2,200,000 operating items+300,000 removal costs

$4,500,000 track structure expenditures

X then adjusts its track structure expenditures as follows:

$4,500,000 track structure expenditures(500,000) new track structure

$4,000,000 adjusted track structure expenditures

X then determines the track maintenance allowance as follows:

$4,000,000 adjusted track structure expendituresx .75 allowance$3,000,000 track maintenance allowance

(3) Capitalized amount. To determine the capitalized amount, X first determines the capital track structure expenditures by sub-tracting the track maintenance allowance determined in (2) as follows:

$4,500,000 track structure expenditures

October 15, 2002 703 2002–41 I.R.B.

(3,000,000) track maintenance allowance$ 1,500,000 capital track structure expenditures

X then allocates its capital track structure expenditures to each track account (Rail and OTM, Ties, and Ballast) first to new trackto the extent of the $500,000 of new track structure for each track account. The remaining $1,000,000 of capital track structure ex-penditures is then allocated to replacement track for each track account in proportion to the adjusted current additions. Thus, X al-locates these amounts as follows:

CurrentAdditions

AmountCapitalized—New Track

AdjustedCurrentAdditions

AmountCapitalized—ReplacementTrack

Ties $1,150,000 $150,000 $1,000,000 $ 666,667Rail & OTM $ 250,000 250,000 0 0Ballast 600,000 100,000 500,000 333,333Total $2,000,000 $500,000 $1,500,000 $1,000,000

For each track account, X applies itsmethod of accounting for uniform capitali-zation under § 263A to the amounts capi-talized to new track and to replacementtrack to determine the additional § 263Acosts that must be capitalized. The totalcapitalized amount for each track accountis determined by combining the amountscapitalized to new track and to replace-ment track with the § 263A costs for eachtrack account. X must depreciate the totalcapitalized amount for each track accountin accordance with § 167 and the regula-tions thereunder.

SECTION 6. CHANGE IN METHODOF ACCOUNTING

.01 In General. A change in a taxpay-er’s treatment of track structure expendi-tures to the track maintenance allowancemethod is a change in method of account-ing to which §§ 446 and 481 apply.

.02 Issue Not Under Consideration. Ifa taxpayer within the scope of this rev-enue procedure wants to change to the trackmaintenance allowance method for eitherits first or second taxable year ending onor after December 31, 2001, (“year ofchange”) and the treatment of its track struc-ture expenditures is not an issue under con-sideration in examination, before an areaappeals office, or before a federal court(within the meaning of section 3.09 of Rev.Proc. 2002–9, 2002–3 I.R.B. 327) on Sep-tember 30, 2002, the taxpayer must fol-low the automatic change in method ofaccounting provisions in Rev. Proc. 2002–9(or its successor) with the followingmodifications:

(1) The scope limitations in section4.02 of Rev. Proc. 2002–9 do not apply.

(2) A taxpayer that wants to changeto the track maintenance allowance methodfor its first taxable year ending on or af-ter December 31, 2001, and that, on or be-fore November 29, 2002, files its originalfederal income tax return for its first tax-able year ending on or after December 31,2001, is not subject to the filing require-ments in section 6.02(3)(a) of Rev. Proc.2002–9, provided that it complies with thefollowing filing requirements. The tax-payer must complete and file a Form 3115in duplicate. The original must be attachedto the taxpayer’s amended federal incometax return for its first taxable year endingon or after December 31, 2001. Thisamended return must be filed no later thanJune 30, 2003. A copy of the Form 3115must be filed with the national office (seesection 6.02(6)(a) of Rev. Proc. 2002–9 forthe address) no later than when the tax-payer’s amended return is filed.

(3) To assist the Service in process-ing changes in method of accounting un-der this section of the revenue procedure,and to ensure proper handling, section6.02(4) of Rev. Proc. 2002–9 is modifiedto require that a Form 3115 filed under thisrevenue procedure include the statement:“Automatic Change Filed Under Rev. Proc.2002–65.” This statement should be leg-ibly printed or typed at the top of any Form3115 filed under this revenue procedure.

.03 Issue Under Consideration. If a tax-payer within the scope of this revenue pro-cedure wants to change to the trackmaintenance allowance method for either

its first or second taxable year ending onor after December 31, 2001, (“year ofchange”) and the treatment of its track struc-ture expenditures is an issue under consid-eration in examination, before an areaappeals office, or before a federal court(within the meaning of section 3.09 of Rev.Proc. 2002–9) on September 30, 2002, thetaxpayer must follow the automatic changein method of accounting provisions in Rev.Proc. 2002–9 with the followingmodifications:

(1) The scope limitations in section4.02 of Rev. Proc. 2002–9 do not apply.

(2) A taxpayer that wants to changeto the track maintenance allowance methodfor its first taxable year ending on or af-ter December 31, 2001, and that, on or be-fore November 29, 2002, files its originalfederal income tax return for its first tax-able year ending on or after December 31,2001, is not subject to the filing require-ments in section 6.02(3)(a) of Rev. Proc.2002–9, provided that it complies with thefollowing filing requirements. The tax-payer must complete and file a Form 3115in duplicate. The original must be attachedto the taxpayer’s amended federal incometax return for its first taxable year endingon or after December 31, 2001. Thisamended return must be filed no later thanJune 30, 2003. A copy of the Form 3115must be filed with the national office (seesection 6.02(6)(a) of Rev. Proc. 2002–9 forthe address) no later than when the tax-payer’s amended return is filed.

(3) To assist the Service in process-ing changes in method of accounting un-der this section of the revenue procedure,

2002–41 I.R.B. 704 October 15, 2002

and to ensure proper handling, section6.02(4) of Rev. Proc. 2002–9 is modifiedto require that a Form 3115 filed under thisrevenue procedure include the statement:“Automatic Change Filed Under Rev. Proc.2002–65.” This statement should be leg-ibly printed or typed at the top of any Form3115 filed under this revenue procedure.

(4) The change to the track mainte-nance allowance method will be made us-ing a “cut-off method.” Under a cut-offmethod, only the items arising on or afterthe beginning of the year of change are ac-counted for under the track maintenance al-lowance method. Any items arising beforethe year of change continue to be accountedfor under the taxpayer’s former method ofaccounting, unless such method of account-ing is changed as a result of an examina-tion or a return filed for a year before theyear of change. Because no items are du-plicated or omitted from income when acut-off method is used to effect a changein accounting method, no § 481(a) adjust-ment is necessary.

(5) Section 7 of Rev. Proc. 2002–9does not apply. The taxpayer does not re-ceive audit protection in connection with achange to the track maintenance allow-ance method.

.04 Special Rule for Certain Taxpay-ers with Issue Under Consideration. If ataxpayer is within the scope of this rev-enue procedure, and the treatment of itstrack structure expenditures is an issue un-der consideration (within the meaning ofsection 3.09 of Rev. Proc. 2002–9) in ex-amination, before an area appeals office, orbefore the Tax Court on September 30,2002, the taxpayer may change to the trackmaintenance allowance method for its firstor second taxable year ending on or afterDecember 31, 2001, under section 6.03 ofthis revenue procedure or, alternatively, foran earlier taxable year under section 8 ofthis revenue procedure.

.05 Special Rule for Taxpayers Reclas-sified as Class I Railroads. In the event thata Class II or Class III railroad is reclassi-fied as a Class I railroad by the SurfaceTransportation Board and required to filea Form R–1, the railroad is not eligible touse the method under this revenue proce-dure for any taxable year that it is a Class

I railroad and must change its method ofaccounting for track structure expendi-tures, beginning with its first full taxableyear as a Class I railroad. The reclassi-fied railroad may adopt the safe harbormethod of accounting for track structure ex-penditures of Rev. Proc. 2001–46, 2001–2C.B. 263, if it otherwise qualifies, and mustdo so on a cut-off basis. To this extent, sec-tion 6.06 of Rev. Proc. 2001–46 is ampli-fied.

.06 Changes Not Made under this Rev-enue Procedure. A taxpayer that wants tochange to the track maintenance allow-ance method described in section 5 of thisrevenue procedure that does not change itsmethod of accounting under section 6 or 8of this revenue procedure must follow thechange in method of accounting provi-sions in Rev. Proc. 97–27, 1997–1 C.B. 680(or any successor).

SECTION 7. RECORD KEEPING

Section 6001 provides that every per-son liable for any tax imposed by the Code,or for the collection thereof, must keep suchrecords, render such statements, make suchreturns, and comply with such rules andregulations as the Secretary may from timeto time prescribe. The books or records re-quired by § 6001 must be kept at all timesavailable for inspection by authorized in-ternal revenue officers or employees, andmust be retained so long as the contentsthereof may become material in the ad-ministration of any internal revenue law.Section 1.6001–1(e). In order to satisfy therecord keeping requirements of § 6001 andthe regulations thereunder, a taxpayer thatchanges to the track maintenance allow-ance method should maintain records sub-stantiating all aspects of entitlement to thededuction, including, but not limited to, thefollowing:

.01 Work papers or reports that iden-tify and extract the taxpayer’s costs for cur-rent additions, operating items, and newtrack structure, including costs to rehabili-tate or improve newly acquired or previ-ously abandoned track structure;

.02 Work papers or reports that iden-tify and extract the taxpayer’s assignedvalue of relay materials and salvage ma-terial credits; and

.03 Work papers or reports that iden-tify the amount of removal costs.

SECTION 8. OPTIONALSETTLEMENT FOR TAXPAYERSUNDER EXAMINATION, BEFORE ANAREA APPEALS OFFICE, ORBEFORE THE TAX COURT

.01 In General. If a taxpayer is withinthe scope of this revenue procedure; thetreatment of its track structure expendi-tures is an issue under consideration (withinthe meaning of section 3.09 of Rev. Proc.2002–9) in examination, before an area ap-peals office, or before the Tax Court onSeptember 30, 2002; and the taxpayer doesnot change to the track maintenance al-lowance method under section 6.03 of thisrevenue procedure, the Service offers tosettle the track structure expenditure is-sue by changing the taxpayer’s method ofaccounting for track structure expendi-tures to the track maintenance allowancemethod in the earliest open taxable year af-ter which there is no closed taxable year.

.02 Terms of Settlement.(1) The Service will change the tax-

payer’s method of accounting for trackstructure expenditures to the track main-tenance allowance method described in sec-tion 5 of this revenue procedure.

(2) The change to the track mainte-nance allowance method will be made inthe earliest open taxable year after whichthere is no closed taxable year using a cut-off method.

(3) The taxpayer must reflect thesettlement on its federal income tax re-turns for any affected succeeding taxableyears. For example, an amount required tobe capitalized during a taxable year cov-ered by the settlement should be depreci-ated in that taxable year and in affectedsucceeding taxable years (whether or notcovered by the settlement) in accordancewith the taxpayer’s method of accountingfor depreciation.

(4) The Service will not require thetaxpayer to change its method of account-ing for track structure expenditures to amethod other than the track maintenance al-lowance method for any taxable year forwhich a federal income tax return has been

October 15, 2002 705 2002–41 I.R.B.

filed as of the date of the closing agree-ment or other appropriate settlement agree-ment, provided that:

(a) the taxpayer has complied withall the applicable provisions of the clos-ing agreement or other appropriate settle-ment agreement;

(b) there has been no taxpayer fraud,malfeasance, or misrepresentation of a ma-terial fact;

(c) there has been no change in thematerial facts on which the closing agree-ment or other appropriate settlement agree-ment was based; and

(d) there has been no change in theapplicable law on which the closing agree-ment or other appropriate settlement agree-ment was based.

(5) The taxpayer must execute a clos-ing agreement under § 7121 or other ap-propriate settlement agreement as describedin section 8.05 of this revenue procedure.

.03 Procedures for Requesting the Settle-ment.

(1) Initiating the request.(a) Taxable years under examina-

tion or in Appeals. A taxpayer that wantsto request a settlement under this sectionfor taxable years under examination or inAppeals must submit its request in writ-ing to the first line examination manageror appeals officer (whichever is applicable)on or before June 30, 2003.

(b) Taxable years before the TaxCourt. A taxpayer that wants to request asettlement under this section for taxableyears before the Tax Court must submit itsrequest in writing to the Chief Counsel at-torney assigned to the case on or before theearlier of June 30, 2003, or the date that is30 days before the date the case is first setfor trial, which is the date scheduled for thecalendar call.

(2) Statement of facts, law, and ar-guments. The request for settlement mustinclude the following information:

(a) the taxpayer’s name, address, tele-phone number, and taxpayer identifica-tion number;

(b) the taxable years covered by theproposed settlement;

(c) the taxpayer’s earliest open tax-able year after which there is no closed tax-able year;

(d) the taxpayer’s current method ofaccounting for track structure expendi-tures;

(e) a statement of the material facts,including the track maintenance allow-ance and the capitalized amount under thetrack maintenance allowance method foreach taxable year under examination, be-fore an area appeals office, or before theTax Court, and an explanation of the com-putations used to determine those amounts;and

(f) a statement of whether the trackmaintenance allowance for each taxable yearunder examination, before an area appealsoffice, or before the Tax Court is taken intoaccount for federal income tax purposes, forexample, whether the amount was incurredunder § 461 in that taxable year, and, if§ 404 applies to any portion of the amountin a particular taxable year, whether thatportion meets the deductibility require-ments of § 404.

(3) Perjury statement. The request forsettlement must be accompanied by the fol-lowing declaration: “Under penalties of per-jury, I declare that I have examined thisrequest, including accompanying docu-ments, and, to the best of my knowledgeand belief, the request contains all the rel-evant facts relating to the request, and suchfacts are true, correct, and complete.” Thisdeclaration must be signed by, or on be-half of, the taxpayer by an individual withthe authority to bind the taxpayer in thesematters. The declaration may not be signedby the taxpayer’s representative.

.04 Procedures for Processing the Re-quest.

(1) Receipt of request acknowledged.The first line examination manager, ap-peals officer, or Chief Counsel attorney(whichever is applicable) will acknowl-edge receipt of the taxpayer’s request forsettlement in writing within 15 businessdays of receipt.

(2) Factual development. The first lineexamination manager, appeals officer, orChief Counsel attorney (whichever is ap-plicable) will contact the taxpayer to dis-cuss any questions the Service may have,or ask for additional information believedto be necessary to execute the settlement(for example, to verify the correctness ofthe taxpayer’s information).

(3) Acceptance. The first line exami-nation manager, appeals officer, or ChiefCounsel attorney (whichever is applicable)will accept the taxpayer’s request for settle-ment if the request complies with the ap-plicable terms of this revenue procedure. For

taxable years before the Tax Court, thesettlement is subject to the approval of theCourt.

(4) Notification of acceptance. Thefirst line examination manager, appeals of-ficer, or Chief Counsel attorney (which-ever is applicable) will notify the taxpayerin writing when the Service agrees to thesettlement requested by the taxpayer.

.05 Procedures for Implementing theSettlement.

(1) Closing agreement or other ap-propriate settlement agreement required. Ataxpayer implementing a settlement is re-quired to execute a closing agreement un-der § 7121 or other appropriate settlementagreement.

(2) Contents of closing agreement orother appropriate settlement agreement. Aclosing agreement or other appropriatesettlement agreement must comply with therequirements of Rev. Proc. 68–16, 1968–1C.B. 770, and, in the case of a closingagreement, must be substantially in the formset forth in the APPENDIX of this rev-enue procedure. Settlement agreements incases pending before the Tax Court mustconform substantially to the provisions setforth in the APPENDIX of this revenue pro-cedure and must conform to the rules andprocedures of the Tax Court.

(3) Review and execution of closingagreement or other appropriate settlementagreement.

(a) Taxpayers under examination.The first line examination manager will pre-pare a closing agreement. The first line ex-amination manager should submit theclosing agreement to the Ground Trans-portation Technical Advisor and his as-signed counsel for review prior tosubmitting the closing agreement to the tax-payer for execution. Failure to submit theclosing agreement to the Technical Advi-sor or his assigned counsel for review willnot invalidate the closing agreement. Af-ter the closing agreement has been ex-ecuted by the taxpayer, it will be executedon behalf of the Service by the Director,Field Operations (LMSB) MCT, New Jer-sey.

(b) Taxpayers before an area ap-peals office. The appeals officer or ap-peals team case leader will prepare a closingagreement. After the closing agreement hasbeen executed by the taxpayer, it will be ex-ecuted on behalf of the Service by an au-thorized official from Appeals.

2002–41 I.R.B. 706 October 15, 2002

(c) Taxpayers before the Tax Court.For docketed tax years before the TaxCourt, the taxpayer and the Chief Coun-sel attorney must prepare an appropriatesettlement document, settlement stipula-tion, or stipulated decision document, pur-suant to the rules and procedures of thecourt. Such settlement document, settle-ment stipulation, or stipulated decisiondocument is subject to the approval of thecourt.

(4) Amended returns.(a) In general. In cases pending be-

fore examination or appeals, the Service willmake the adjustments necessary to reflectthe settlement to the taxpayer’s returns forthe taxable years under examination or be-fore an area appeals office. In cases pend-ing before the Tax Court, the settlementagreement will include adjustments neces-sary to reflect the settlement with respectto the year(s) before the court. The tax-payer is required to file amended returns toreflect the settlement for any other affectedtaxable years for which a federal incometax return has been filed as of the date ofthe closing agreement. The amended re-turns must include the adjustments to tax-able income necessary to reflect the newmethod and any collateral adjustments totaxable income or tax liability resulting fromthe change. A taxpayer eligible to file a“qualified amended return” under Rev. Proc.94–69, 1994–2 C.B. 804, may satisfy therequirements of this section by filing aqualified amended return in accordance withthat revenue procedure.

(b) Time and manner. The taxpayermust file any required amended returns onor before the date it executes the closingagreement or other appropriate settlementagreement. The taxpayer must provide acopy of the amended returns to the first lineexamination manager, appeals officer, orChief Counsel attorney (whichever is ap-plicable) at the time it files the amended re-turns.

(5) Application of Rev. Proc. 2002–18. Except as otherwise provided in thisrevenue procedure, the provisions of Rev.Proc. 2002–18 will apply to any settle-ment under section 8 of this revenue pro-cedure.

.06 Effect on Other Offices of the Ser-vice. If a taxpayer is before an area ap-peals office or the Tax Court regarding thetreatment of its track structure expendi-tures and does not settle this issue under the

provisions of this section 8, an appropri-ate representative from an area appeals of-fice or Chief Counsel office may settle aparticular taxpayer’s case involving this is-sue on a more favorable or less favorablebasis than provided in this revenue proce-dure. For example, an appeals officer maysettle a case based on the hazards of liti-gation.

SECTION 9. EFFECTIVE DATE

This revenue procedure is effective fortaxable years ending on or after Decem-ber 31, 2001.

SECTION 10. EFFECT ON OTHERDOCUMENTS

Rev. Proc. 2002–9 is modified and am-plified to include this accounting methodchange in the APPENDIX. Rev. Proc.2001–46 is amplified to address the reclas-sification of a Class II or III railroad to aClass I railroad.

DRAFTING INFORMATION

The principal author of this revenue pro-cedure is Patricia Zweibel of the Office ofAssociate Chief Counsel (Income Tax andAccounting). For further information re-garding this revenue procedure, contactMs. Zweibel at (202) 622–5020 (not a toll-free call).

APPENDIX

Department of the Treasury Internal Rev-enue Service

Closing Agreement on Final Determi-nation Covering Specific Matters

Under § 7121 of the Internal RevenueCode of 1986, [Taxpayer’s name, address,telephone number, and identifying num-ber] (“the taxpayer”) and the Commis-sioner of Internal Revenue make thefollowing closing agreement:

WHEREAS:1. The taxpayer is a Class II or Class III

railroad, as designated by the Surface Trans-portation Board, that is not required to filea Form R–1.

2. The issue covered in this closingagreement is the taxpayer’s treatment oftrack structure expenditures incurred as aresult of performing various activities to ac-quire, construct, maintain, repair, and im-prove track structure. The definition of“track structure expenditures” and other

terms defined in section 4 of Rev. Proc.2002–65, apply for purposes of this clos-ing agreement.

3. The taxable years covered by thisclosing agreement are [insert applicable tax-able years].

4. The taxpayer currently accounts fortrack structure expenditures as follows: [in-sert taxpayer’s current method of account-ing for track structure expenditures].

5. The taxpayer and the Internal Rev-enue Service (“Service”) rely on the fol-lowing facts and representations in makingthis closing agreement: [insert relevant facts,including the track maintenance allow-ance and the capitalized amount under thetrack maintenance allowance method foreach taxable year under examination, be-fore an area appeals office, or before theTax Court, an explanation of the compu-tations used to determine those amounts,and a statement of whether the track main-tenance allowance for each of those tax-able years is taken into account for federalincome tax purposes].

NOW IT IS HEREBY DETERMINEDAND AGREED for federal income taxpurposes:

1. That the Service is changing the tax-payer’s method of accounting for trackstructure expenditures to the track main-tenance allowance method of accounting de-scribed in section 5 of Rev. Proc. 2002–65, for the taxable year ending [insertearliest open taxable year after which thereis no closed taxable year].

2. That the method change will be imple-mented using a cut-off method.

3. That the adjustments to taxable in-come necessary to reflect the new method,and any collateral adjustments to taxable in-come or tax liability resulting from thechange for each of the taxable years cov-ered by this agreement, are as follows: [in-sert appropriate adjustments].

4. (If appropriate), That the taxpayer hasfiled any amended returns required by sec-tion 8.05(4) of Rev. Proc. 2002–65, to re-flect the settlement.

5. That the Service will not require thetaxpayer to change its method of account-ing for track structure expenditures to amethod other than the track maintenance al-lowance method for any taxable year forwhich a federal income tax return has beenfiled as of the date of this closing agree-ment, provided that: (a) the taxpayer hascomplied with all the applicable provi-

October 15, 2002 707 2002–41 I.R.B.

sions of the closing agreement; (b) there hasbeen no taxpayer fraud, malfeasance, ormisrepresentation of a material fact; (c)there has been no change in the materialfacts on which the closing agreement wasbased; and (d) there has been no change inthe applicable law on which the closingagreement was based.

6. That the Service is not precluded fromchallenging the computation of the trackmaintenance allowance for any taxable yearcovered by this closing agreement on a ba-sis unrelated to the track maintenance al-lowance method (for example, that all or

a portion of the amount is not incurred un-der § 461 or that the taxpayer has not prop-erly applied the uniform capitalization rulesof § 263A and the regulations thereun-der).

7. That the taxpayer accepts this settle-ment and agrees to the applicable terms ofRev. Proc. 2002–65.

This agreement is final and conclusiveexcept:

(1) The matter it relates to may be re-opened in the event of fraud, malfeasance,or misrepresentation of a material fact;

(2) It is subject to the Internal Rev-enue Code sections that expressly pro-vide that effect be given to their provisions(including any stated exception for § 7122)notwithstanding any law or rule of law; and

(3) If it relates to a tax period ending af-ter the date of this agreement, it is sub-ject to any law enacted after the agreementdate, that applies to the tax period.

By signing, the parties certify that theyhave read and agreed to the terms of thisdocument.

Taxpayer (other than individual):

By:__________________ Date:________________

Title:_________________

Commissioner of Internal Revenue:

By:_________________ Date:_________________

Title:_________________

Instructions

[This agreement must be signed and filed in triplicate. (All copies must have original signatures.) The original and copies of theagreement must be identical. The name of the taxpayer must be stated accurately. The agreement may relate to one or more years.

If an attorney or agent signs the agreement for the taxpayer, the power of attorney (or a copy) authorizing that person to sign mustbe attached to the agreement.

If the taxpayer is a corporation, the agreement must be dated and signed with the name of the corporation, the signature and titleof an authorized officer or officers, or the signature of an authorized attorney or agent. It is not necessary that a copy of an en-abling corporate resolution be attached.

Use additional pages if necessary and identify them as part of this agreement.

Please see Rev. Proc. 68–16, 1968–1 C.B. 770, for a detailed description of practices and procedures applicable to most closing agree-ments.]

I have examined the specific matters involved and recommend the acceptance of the proposed agreement

(Receiving Officer)______________ (Date)________________

(Title)________________

I have examined the specific matters involved and recommend the acceptance of the proposed agreement

(Receiving Officer)______________ (Date)________________

(Title)________________

2002–41 I.R.B. 708 October 15, 2002

Part IV. Items of General Interest

Request for CommentsRegarding Application forRecognition of Exemption

Announcement 2002–92

The Internal Revenue Service (IRS) isrevising Form 1023, Application for Rec-ognition of Exemption under Section501(c)(3) of the Internal Revenue Code, andInstructions for Form 1023. To ensure thatthis process considers the needs of all whohave an interest in the application filed byorganizations to obtain recognition of ex-emption from federal income tax under sec-tion 501(c)(3) of the Internal Revenue Code,we are seeking comments from exempt or-ganizations, practitioners, state regula-tors, vendors, and others.

BACKGROUND

In order to be recognized as exemptfrom federal income tax under section501(a) as an organization described in sec-tion 501(c)(3), the law requires that mostorganizations submit an application with adetailed statement of their proposed activi-ties sufficient to establish that they qualifyfor exemption. This draft application andaccompanying instructions takes into con-sideration this requirement and commentswe previously received from those involvedin the application process with sugges-tions for improvements.

REQUEST FOR PUBLIC COMMENT

The IRS requests comments from ex-empt organizations, practitioners, and all in-terested stakeholders on proposed revisionsto the current Form 1023 and Instructions.The proposed revisions have been postedon the IRS website, at www.irs.gov/eo.

Interested parties should provide a state-ment explaining their interest in the Form1023 and any information that will be use-ful in revising it. We are particularly in-terested in comments that address thefollowing:

1. Ease of comprehension,

2. Customer burden,3. Technical accuracy, and4. Sufficiency of information requested.Public comments should be submitted in

writing on or before December 2, 2002, tothe following address:

Internal Revenue Service1111 Constitution Avenue, NWWashington, DC 20224Attn: Amy Henchey - Form 1023AnnouncementT:EO:CEO

Comments may also be sent via elec-tronic mail to *TE/GE–EO–2@irs.gov.Please note that the * asterisk symbol is anintegral part of the address.

DRAFTING INFORMATION

The principal author of this announce-ment is Amy Henchey of Exempt Organi-zations. For further information regardingthis announcement, contact Amy Hencheyat (202) 283–8856 or Cindy Westcott at(513) 263–3519 (not a toll-free call).

10 or More Employer Plans;Hearing

Announcement 2002–93

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Change of date and locationof public hearing.

SUMMARY: This document changes thedate and location of a public hearing onproposed regulations (REG–165868–01,2002–31 I.R.B. 270) relating to 10 or moreemployer plans under section 419 of the In-ternal Revenue Code.

DATES: The public hearing originallyscheduled for Tuesday, November 5, 2002,at 10 a.m., in room 4718, is rescheduled forThursday, November 14, 2002, at 10 a.m.,in room 2140.

ADDRESSES: The public hearingoriginally scheduled to be in room 4718of the Internal Revenue Building, 1111Constitution Avenue NW, Washington,DC. will be held in room 2140 of theInternal Revenue Building, 1111Constitution Avenue NW, Washington,DC.

FOR FURTHER INFORMATION: GuyR. Traynor of the Regulations Unit,Associate Chief Counsel (Income Tax &Accounting), (202) 622–7180 (not atoll-free number).

SUPPLEMENTARY INFORMATION:

A notice of proposed rulemaking and no-tice of public hearing appearing in the Fed-eral Register on Thursday, July 11, 2002(67 FR 45933), announced that a publichearing on proposed regulations relating to10 or more employer plans under section419 of the Internal Revenue Code wouldbe held on Tuesday, November 5, 2002, be-ginning at 10 a.m. in room 4718 of the In-ternal Revenue Building, 1111 ConstitutionAvenue NW, Washington, DC.

The date and location of the public hear-ing has changed. The hearing is sched-uled for Thursday, November 14, 2002,beginning at 10 a.m. in room 2140, Inter-nal Revenue Building, 1111 ConstitutionAvenue NW, Washington, DC. We must re-ceive requests to speak and outlines of oralcomments by October 24, 2002. Becauseof the controlled access restrictions, attend-ers are not admitted beyond the lobby ofthe Internal Revenue Building until 9:30a.m. The Service will prepare an agendashowing the scheduling of the speakers af-ter the outlines are received from the per-sons testifying and make copies availablefree of charge at the hearing.

Cynthia E. Grigsby,Chief, Regulations Unit,Associate Chief Counsel

(Income Tax & Accounting).

(Filed by the Office of the Federal Register on September 10,2002, 8:45 a.m., and published in the issue of the Federal Reg-ister for September 11, 2002, 67 F.R. 57543)

October 15, 2002 709 2002–41 I.R.B.

Definition of TermsRevenue rulings and revenue procedures(hereinafter referred to as“rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe theeffect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position isbeing extended to apply to a variation ofthe fact situation set forth therein. Thus, ifan earlier ruling held that a principleapplied to A, and the new ruling holdsthat the same principle also applies to B,the earlier ruling is amplified. (Comparewith modified, below).

Clarified is used in those instanceswhere the language in a prior ruling isbeing made clear because the languagehas caused, or may cause, some confu-sion. It is not used where a position in aprior ruling is being changed.

Distinguished describes a situationwhere a ruling mentions a previouslypublished ruling and points out an essen-tial difference between them.

Modified is used where the substanceof a previously published position isbeing changed. Thus, if a prior rulingheld that a principle applied to A but notto B, and the new ruling holds that it

applies to both A and B, the prior rulingis modified because it corrects a pub-lished position. (Compare with amplifiedand clarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly usedin a ruling that lists previously publishedrulings that are obsoleted because ofchanges in law or regulations. A rulingmay also be obsoleted because the sub-stance has been included in regulationssubsequently adopted.

Revoked describes situations where theposition in the previously published rul-ing is not correct and the correct positionis being stated in the new ruling.

Superseded describes a situation wherethe new ruling does nothing more thanrestate the substance and situation of apreviously published ruling (or rulings).Thus, the term is used to republish underthe 1986 Code and regulations the sameposition published under the 1939 Codeand regulations. The term is also usedwhen it is desired to republish in a singleruling a series of situations, names, etc.,that were previously published over aperiod of time in separate rulings. If the

new ruling does more than restate thesubstance of a prior ruling, a combinationof terms is used. For example, modifiedand superseded describes a situationwhere the substance of a previously pub-lished ruling is being changed in part andis continued without change in part and itis desired to restate the valid portion ofthe previously published ruling in a newruling that is self contained. In this case,the previously published ruling is firstmodified and then, as modified, is super-seded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further namesin subsequent rulings. After the originalruling has been supplemented severaltimes, a new ruling may be published thatincludes the list in the original ruling andthe additions, and supersedes all prior rul-ings in the series.

Suspended is used in rare situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome ofcases in litigation, or the outcome of aService study.

AbbreviationsThe following abbreviations in currentuse and formerly used will appear inmaterial 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.

E.O.—Executive Order.ER—Employer.ERISA—Employee Retirement Income Security Act.EX—Executor.F—Fiduciary.FC—Foreign Country.FICA—Federal Insurance Contributions 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 Procedural 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.

2002–41 I.R.B. i October 15, 2002

Numerical Finding List1

Bulletin 2002–26 through 2002–40

Announcements:

2002–59, 2002–26 I.R.B. 282002–60, 2002–26 I.R.B. 282002–61, 2002–27 I.R.B. 722002–62, 2002–27 I.R.B. 722002–63, 2002–27 I.R.B. 722002–64, 2002–27 I.R.B. 722002–65, 2002–29 I.R.B. 1822002–66, 2002–29 I.R.B. 1832002–67, 2002–30 I.R.B. 2372002–68, 2002–31 I.R.B. 2832002–69, 2002–31 I.R.B. 2832002–70, 2002–31 I.R.B. 2842002–71, 2002–32 I.R.B. 3232002–72, 2002–32 I.R.B. 3232002–73, 2002–33 I.R.B. 3872002–74, 2000–33 I.R.B. 3872002–75, 2002–34 I.R.B. 4162002–76, 2002–35 I.R.B. 4712002–77, 2002–35 I.R.B. 4712002–78, 2002–36 I.R.B. 5142002–79, 2002–36 I.R.B. 5152002–80, 2002–36 I.R.B. 5152002–81, 2002–37 I.R.B. 5332002–82, 2002–37 I.R.B. 5332002–83, 2002–38 I.R.B. 5642002–84, 2002–37 I.R.B. 5332002–85, 2002–39 I.R.B. 6242002–86, 2002–39 I.R.B. 6242002–87, 2002–39 I.R.B. 6242002–88, 2002–38 I.R.B. 5642002–89, 2002–39 I.R.B. 6262002–90, 2002–40 I.R.B. 6842002–91, 2002–40 I.R.B. 685

Court Decisions:

2075, 2002–38 I.R.B. 548

Notices:

2002–42, 2002–27 I.R.B. 362002–43, 2002–27 I.R.B. 382002–44, 2002–27 I.R.B. 392002–45, 2002–28, I.R.B. 932002–46, 2002–28 I.R.B. 962002–47, 2002–28 I.R.B. 972002–48, 2002–29 I.R.B. 1302002–49, 2002–29 I.R.B. 1302002–50, 2002–28 I.R.B. 982002–51, 2002–29 I.R.B. 1312002–52, 2002–30 I.R.B. 1872002–53, 2002–30 I.R.B. 1872002–54, 2002–30 I.R.B. 1892002–55, 2002–36 I.R.B. 4812002–56, 2002–32 I.R.B. 3192002–57, 2002–33 I.R.B. 3792002–58, 2002–35 I.R.B. 4322002–59, 2002–36 I.R.B. 4812002–60, 2002–36 I.R.B. 4822002–61, 2002–38 I.R.B. 563

Notices—Continued:

2002–62, 2002–39 I.R.B. 5742002–63, 2002–40 I.R.B. 644

Proposed Regulations:

REG–248110–96, 2002–26 I.R.B. 19REG–110311–98, 2002–28 I.R.B. 109REG–103823–99, 2002–27 I.R.B. 44REG–103829–99, 2002–27 I.R.B. 59REG–103735–00, 2002–28 I.R.B. 109REG–106457–00, 2002–26 I.R.B. 23REG–106871–00, 2002–30 I.R.B. 190REG–106876–00, 2002–34 I.R.B. 392REG–106879–00, 2002–34 I.R.B. 402REG–107524–00, 2002–28 I.R.B. 110REG–115285–01, 2002–27 I.R.B. 62REG–115781–01, 2002–33 I.R.B. 380REG–116644–01, 2002–31 I.R.B. 268REG–123345–01, 2002–32 I.R.B. 321REG–126024–01, 2002–27 I.R.B. 64REG–136311–01, 2002–36 I.R.B. 485REG–164754–01, 2002–30 I.R.B. 212REG–165868–01, 2002–31 I.R.B. 270REG–106359–02, 2002–34 I.R.B. 405REG–122564–02, 2002–26 I.R.B. 25REG–123305–02, 2002–26 I.R.B. 26REG–124256–02, 2002–33 I.R.B. 383REG–133254–02, 2002–34 I.R.B. 412REG–134026–02, 2002–40 I.R.B. 684

Revenue Procedures:

2002–43, 2002–28 I.R.B. 992002–44, 2002–26 I.R.B. 102002–45, 2002–27 I.R.B. 402002–46, 2002–28 I.R.B. 1052002–47, 2002–29 I.R.B. 1332002–48, 2002–37 I.R.B. 5312002–49, 2002–29 I.R.B. 1722002–50, 2002–29 I.R.B. 1732002–51, 2002–29 I.R.B. 1752002–52, 2002–31 I.R.B. 2422002–53, 2002–31 I.R.B. 2532002–54, 2002–35 I.R.B. 4322002–55, 2002–35 I.R.B. 4352002–56, 2002–36 I.R.B. 4832002–57, 2002–39 I.R.B. 5752002–58, 2002–40 I.R.B. 6442002–59, 2002–39 I.R.B. 6152002–60, 2002–40 I.R.B. 6452002–61, 2002–39 I.R.B. 6162002–62, 2002–40 I.R.B. 683

Revenue Rulings:

2002–38, 2002–26 I.R.B. 42002–39, 2002–27 I.R.B. 332002–40, 2002–27 I.R.B. 302002–41, 2002–28 I.R.B. 752002–42, 2002–28 I.R.B. 762002–43, 2002–28 I.R.B. 852002–44, 2002–28 I.R.B. 842002–45, 2002–29 I.R.B. 1162002–46, 2002–29 I.R.B. 1172002–47, 2002–29 I.R.B. 119

Revenue Rulings—Continued:

2002–48, 2002–31 I.R.B. 2392002–49, 2002–32 I.R.B. 2882002–50, 2002–32 I.R.B. 2922002–51, 2002–33 I.R.B. 3272002–52, 2002–34 I.R.B. 3882002–53, 2002–35 I.R.B. 4272002–54, 2002–37 I.R.B. 5272002–55, 2002–37 I.R.B. 5292002–56, 2002–37 I.R.B. 5262002–57, 2002–37 I.R.B. 5262002–58, 2002–38 I.R.B. 5412002–59, 2002–38 I.R.B. 5572002–60, 2002–40 I.R.B. 6412002–61, 2002–40 I.R.B. 639

Treasury Decisions:

8997, 2002–26 I.R.B. 68998, 2002–26 I.R.B. 18999, 2002–28 I.R.B. 789000, 2002–28 I.R.B. 879001, 2002–29 I.R.B. 1289002, 2002–29 I.R.B. 1209003, 2002–32 I.R.B. 2949004, 2002–33 I.R.B. 3319005, 2002–32 I.R.B. 2909006, 2002–32 I.R.B. 3159007, 2002–33 I.R.B. 3499008, 2002–33 I.R.B. 3359009, 2002–33 I.R.B. 3289010, 2002–33 I.R.B. 3419011, 2002–33 I.R.B. 3569012, 2002–34 I.R.B. 3899013, 2002–38 I.R.B. 5429014, 2002–35 I.R.B. 4299015, 2002–40 I.R.B. 6429016, 2002–40 I.R.B. 628

1 A cumulative list of all revenue rulings, revenue

procedures, Treasury decisions, etc., published in

Internal Revenue Bulletins 2002–1 through 2002–25 is

in Internal Revenue Bulletin 2002–26, dated July 1, 2002.

October 15, 2002 ii 2002–41 I.R.B.

Finding List of Current Actionson Previously Published Items1

Bulletin 2002–26 through 2002–40

Announcements:

98–99Superseded byRev. Proc. 2002–44, 2002–26 I.R.B. 10

2000–4Modified byAnn. 2002–60, 2002–26 I.R.B. 28

2001–9Superseded byRev. Proc. 2002–44, 2002–26 I.R.B. 10

Notices:

97–26Modified and superseded byNotice 2002–62, 2002–39 I.R.B. 574

2001–6Superseded byNotice 2002–63, 2002–40 I.R.B. 644

2001–62Modified and superseded byNotice 2002–62, 2002–39 I.R.B. 574

Proposed Regulations:

REG–208280–86Withdrawn byREG–136311–01, 2002–36 I.R.B. 485

REG–209114–90Corrected byAnn. 2002–65, 2002–29 I.R.B. 182

REG–209813–96Withdrawn byREG–106871–00, 2002–30 I.R.B. 190

REG–103823–99Corrected byAnn. 2002–67, 2002–30 I.R.B. 237Ann. 2002–79, 2002–36 I.R.B. 515

REG–103829–99Corrected byAnn. 2002–82, 2002–37 I.R.B. 533

REG–105885–99Corrected byAnn. 2002–67, 2002–30 I.R.B. 237

REG–105369–00Clarified byNotice 2002–52, 2002–30 I.R.B. 187Corrected byAnn. 2002–67, 2002–30 I.R.B. 237

REG–118861–00Corrected byAnn. 2002–67, 2002–30 I.R.B. 237

REG–126100–00Withdrawn byREG–133254–02, 2002–34 I.R.B. 412

Proposed Regulations—Continued

REG–136193–01Corrected byAnn. 2002–67, 2002–30 I.R.B. 237

REG–161424–01Corrected byAnn. 2002–67, 2002–30 I.R.B. 237

REG–165706–01Corrected byAnn. 2002–67, 2002–30 I.R.B. 237

REG–102740–02Corrected byAnn. 2002–67, 2002–30 I.R.B. 237

REG–106359–02Corrected byAnn. 2002–81, 2002–37 I.R.B. 533

REG–108697–02Corrected byAnn. 2002–84, 2002–37 I.R.B. 533

REG–123305–02Corrected byAnn. 2002–69, 2002–31 I.R.B. 283

Revenue Procedures:

88–10Superseded byRev. Proc. 2002–48, 2002–37 I.R.B. 531

91–23Modified and superseded byRev. Proc. 2002–52, 2002–31 I.R.B. 242

91–26Modified and superseded byRev. Proc. 2002–52, 2002–31 I.R.B. 242

95–18Superseded byRev. Proc. 2002–51, 2002–29 I.R.B. 175

96–13Modified and superseded byRev. Proc. 2002–52, 2002–31 I.R.B. 242

96–14Modified and superseded byRev. Proc. 2002–52, 2002–31 I.R.B. 242

96–53Amplified byRev. Proc. 2002–52, 2002–31 I.R.B. 242

2001–12Obsoleted byT.D. 9004, 2002–33 I.R.B. 331

2001–17Modified and superseded byRev. Proc. 2002–47, 2002–29 I.R.B. 133

2001–26Superseded byRev. Proc. 2002–53, 2002–31 I.R.B. 253

Revenue Procedures—Continued

2001–45Superseded byRev. Proc. 2002–60, 2002–40 I.R.B. 645

2001–50Superseded byRev. Proc. 2002–57, 2002–39 I.R.B. 575

2001–54Superseded byRev. Proc. 2002–61, 2002–39 I.R.B. 616

2002–9Modified and amplified byRev. Proc. 2002–46, 2002–28 I.R.B. 105Amplified, clarified, and modified byRev. Proc. 2002–54, 2002–35 I.R.B. 432

2002–13Modified byRev. Proc. 2002–45, 2002–27 I.R.B. 40

2002–15Modified and superseded byRev. Proc. 2002–59, 2002-39 I.R.B. 615

2002–19Amplified and clarified byRev. Proc. 2002–54, 2002–35 I.R.B. 432

Revenue Rulings:

54–571Obsoleted byT.D. 9010, 2002–33 I.R.B. 341

55–534Distinguished byRev. Rul. 2002–60, 2002–40 I.R.B. 641

55–606Obsoleted byT.D. 9010, 2002–33 I.R.B. 341

59–328Obsoleted byT.D. 9010, 2002–33 I.R.B. 341

64–36Obsoleted byT.D. 9010, 2002–33 I.R.B. 341

65–129Obsoleted byT.D. 9010, 2002–33 I.R.B. 341

67–197Obsoleted byT.D. 9010, 2002–33 I.R.B. 341

69–259Modified and superseded byRev. Rul. 2002–50, 2002–32 I.R.B. 292

69–595Obsoleted in part byT.D. 9010, 2002–33 I.R.B. 341

1 A cumulative list of current actions on previously published

items in Internal Revenue Bulletins 2002–1 through 2002–25 is

in Internal Revenue Bulletin 2002–26, dated July 1, 2002.

2002–41 I.R.B. iii October 15, 2002

Revenue Rulings—Continued

70–608Obsoleted in part byT.D. 9010, 2002–33 I.R.B. 341

73–232Obsoleted byT.D. 9010, 2002–33 I.R.B. 341

76–225Revoked byREG–115781–01, 2002–33 I.R.B. 380

77–53Obsoleted byT.D. 9010, 2002–33 I.R.B. 341

85–50Obsoleted byT.D. 2002–33 I.R.B. 341

92–17Amplified byRev. Rul. 2002–49, 2002–32 I.R.B. 288

92–75Clarified byRev. Proc. 2002–52, 2002–31 I.R.B. 242

93–70Obsoleted byT.D. 9010, 2002–33 I.R.B. 341

94–76Amplified byRev. Rul. 2002–42, 2002–28 I.R.B. 76

Treasury Decisions:

8925Corrected byAnn. 2002–89, 2002–39 I.R.B. 626

8997Corrected byAnn. 2002–68, 2002–31 I.R.B. 283

8999Corrected byAnn. 2002–71, 2002–32 I.R.B. 323

9013Corrected byAnn. 2002–83, 2002–38 I.R.B. 564

October 15, 2002 iv

2002–41 I.R.B.496-919/60052������ ���������������������������