rev. proc. 97-58

INCOME TAX

Rev. Rul. 97–53, page 13.

Interest rates; underpayments and overpayments. Therate of interest determined under section 6621 of the Codefor the calendar quarter beginning January 1, 1998, will be8 percent for overpayments, 9 percent for underpayments,and 11 percent for large corporate underpayments. The rateof interest paid on the portion of a corporate overpaymentexceeding $10,000 is 6.5 percent.


Line pack gas; cushion gas. The cost of recoverable linepack gas or cushion gas is a capital expenditure and is notdepreciable. The cost of nonrecoverable line pack gas orcushion gas is a capital expenditure and is depreciable.


Certain cost-sharing payments. The Wetlands ReserveProgram, the Environmental Quality Incentives Program, andthe Wildlife Habitat Incentives Program are substantially sim-ilar to the type of programs described in section 126(a)(1)through (8) of the Code so that cost-share payments madeunder such programs and in connection with small water-sheds are within the scope of section 126(a)(9) and,thereby, cost-share payments received under the programsare eligible for exclusion from gross income to the extentpermitted by section 126.


Section 1274A inflation-adjusted numbers for 1998.This ruling provides the dollar amounts, increased by the1998 inflation adjustment, for section 1274A of the Code.Rev. Rul. 96–63 supplemented and superseded.

Rev. Rul. 97–57, page 16.CPI adjustment for below-market loans—1998. Theamount that section 7872(g) of the Code permits a taxpayerto lend to a qualified continuing care facility without incurringimputed interest is published and adjusted for inflation foryears 1987–1998. Rev. Rul. 96–64 supplemented and su-perseded.

EXEMPT ORGANIZATIONS

Announcement 97–125, page 60.A list is provided of organizations now classified as privatefoundations.

Announcement 97–126, page 61.A list is provided of organizations that no longer qualify asorganizations for which contributions are deductible undersection 170 of the Code.

EMPLOYMENT TAX

2.Railroad retirement; rate determination; quarterly. TheRailroad Retirement Board has determined that the rate oftax imposed by section 3221 of the Code shall be 35 centsfor the quarter beginning October 1, 1997, and 35 cents forthe quarter beginning January 1, 1998.

Page 59.Social security contribution and benefit base; domes-tic employee coverage threshold. The Commissioner ofthe Social Security Administration has announced the OASDIcontribution and benefit base for remuneration paid in 1998and self-employment income earned in taxable years begin-ning in 1998. The Commissioner has also determined thedomestic employee coverage threshold amount for 1998.

Internal Revenue

bbuulllleettiinnBulletin No. 1997–52December 29, 1997

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.

Department of the TreasuryInternal Revenue Service

Announcement Relating to Court Decisions begins on page 5.Finding Lists begin on page 63.Announcement of Declaratory Judgment Proceedings Under Section 7428 begins on page 61.

Continued on page 4.

Mission of the Service

The purpose of the Internal Revenue Service is to collectthe proper amount of tax revenue at the least cost; servethe public by continually improving the quality of our prod-

ucts and services; and perform in a manner warrantingthe highest degree of public confidence in our integrity, effi-ciency, and fairness.

2

Statement of Principlesof Internal RevenueTax AdministrationThe function of the Internal Revenue Service is to adminis-ter the Internal Revenue Code. Tax policy for raising revenueis determined by Congress.

With this in mind, it is the duty of the Service to carry out thatpolicy by correctly applying the laws enacted by Congress;to determine the reasonable meaning of various Code provi-sions in light of the Congressional purpose in enacting them;and to perform this work in a fair and impartial manner, withneither a government nor a taxpayer point of view.

At the heart of administration is interpretation of the Code. Itis the responsibility of each person in the Service, chargedwith the duty of interpreting the law, to try to find the truemeaning of the statutory provision and not to adopt astrained construction in the belief that he or she is “protect-ing the revenue.” The revenue is properly protected onlywhen we ascertain and apply the true meaning of the statute.

The Service also has the responsibility of applying andadministering the law in a reasonable, practical manner.Issues should only be raised by examining officers whenthey have merit, never arbitrarily or for trading purposes.At the same time, the examining officer should never hesi-tate to raise a meritorious issue. It is also important thatcare be exercised not to raise an issue or to ask a court toadopt a position inconsistent with an established Serviceposition.

Administration should be both reasonable and vigorous. Itshould be conducted with as little delay as possible andwith great courtesy and considerateness. It should nevertry to overreach, and should be reasonable within thebounds of law and sound administration. It should, howev-er, be vigorous in requiring compliance with law and itshould be relentless in its attack on unreal tax devices andfraud.

The Internal Revenue Bulletin is the authoritative instrumentof the Commissioner of Internal Revenue for announcing offi-cial rulings and procedures of the Internal Revenue Serviceand for publishing Treasury Decisions, Executive Orders, TaxConventions, legislation, court decisions, and other items ofgeneral interest. It is published weekly and may be obtainedfrom the Superintendent of Documents on a subscriptionbasis. Bulletin contents of a permanent nature are consoli-dated semiannually into Cumulative Bulletins, which are soldon 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 applicationof the tax laws, including all rulings that supersede, revoke,modify, or amend any of those previously published in theBulletin. All published rulings apply retroactively unless other-wise indicated. Procedures relating solely to matters of in-ternal management are not published; however, statementsof internal practices and procedures that affect the rightsand duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service onthe application of the law to the pivotal facts stated in therevenue ruling. In those based on positions taken in rulingsto taxpayers or technical advice to Service field offices,identifying details and information of a confidential natureare deleted to prevent unwarranted invasions of privacy andto comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not havethe force and effect of Treasury Department Regulations,but they may be used as precedents. Unpublished rulingswill not be relied on, used, or cited as precedents by Servicepersonnel in the disposition of other cases. In applying pub-lished rulings and procedures, the effect of subsequent leg-islation, regulations, court decisions, rulings, and proce-

dures must be considered, and Service personnel and oth-ers concerned are cautioned against reaching the same con-clusions in other cases unless the facts and circumstancesare substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisionsof the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions, and Subpart B, Legislation and RelatedCommittee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references tothese subjects are contained in the other Parts and Sub-parts. Also included in this part are Bank Secrecy Act Admin-istrative Rulings. Bank Secrecy Act Administrative Rulingsare issued by the Department of the Treasury’s Office of theAssistant Secretary (Enforcement).

Part IV.—Items of General Interest.With the exception of the Notice of Proposed Rulemakingand the disbarment and suspension list included in this part,none of these announcements are consolidated in the Cumu-lative Bulletins.

The first Bulletin for each month includes a cumulative indexfor the matters published during the preceding months.These monthly indexes are cumulated on a quarterly andsemiannual basis, and are published in the first Bulletin of thesucceeding quarterly and semiannual period, respectively.

3

Introduction

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.

ADMINISTRATIVE

Rev. Proc. 97-56, page 18.Penalties; substantial understatement. Guidance is pro-vided concerning when information shown on a return inaccordance with the applicable forms and instructions will beadequate disclosure for purposes of reducing an understate-ment of income tax under section 6662(d) of the Code.

Rev. Proc. 97–57, page 20.Cost-of-living adjustments for 1998. The Service providescost-of-living adjustments for the tax rate tables for individuals,estates, and trusts, the standard deduction amounts, the per-sonal exemption, and several other items that use the adjust-ment method provided for the tax rate tables. The Servicealso provides the adjustment for eligible long-term care pre-miums and another item that uses the adjustment method pro-vided for eligible long-term care premiums.

Rev. Proc. 97–58, page 24.Optional standard mileage rates. This procedure an-nounces 32.5 cents as the optional rate for deducting or ac-counting for expenses for business use of an automobile,14 cents as the optional rate for deducting or accounting foruse of an automobile as a charitable contribution, and 10cents as the optional rate for deducting or accounting foruse of an automobile as a medical or moving expense for1998. It provides rules for substantiating the deductible ex-penses of using an automobile for business, moving, med-ical, or charitable purposes. Rev. Proc. 96–63 superseded.

Rev. Proc. 97–59, page 31.Per diem allowances. This procedure provides optionalrules for deeming substantiated the amount of certain reim-bursed traveling expenses of an employee as well as for de-termining the amount of deductible meals while travelingaway from home. Rev. Proc. 96–64 superseded.

Rev. Proc. 97–60, page 38.Electronic filing program; Form 1040. Participants inthe 1998 Electronic Filing Program for the Form 1040 Se-ries are informed of their obligations to the Service, taxpay-ers, and other participants.

Rev. Proc. 97–61, page 50.On-line filing program; Form 1040. Participants in the1998 On-Line Filing Program for the Form 1040 Series areinformed of their obligations to the Service, taxpayers, andother participants.

Notice 97–77, page 18.Partnership magnetic media filing requirement. Guid-ance is provided to partnerships having more than 100 part-ners regarding the requirement to file partnership tax returnson magnetic media.

Announcement 97–124, page 60.The Service will extend the due date for federal tax depositsdue to the extra federal holiday.

December 29, 1997 4 1997–52 I.R.B.

HIGHLIGHTSOF THIS ISSUE—Continued

1997–52 I.R.B. 5 December 29, 1997

It is the policy of the Internal RevenueService to announce at an early datewhether it will follow the holdings in cer-tain cases. An Action on Decision is thedocument making such an announcement.An Action on Decision will be issued atthe discretion of the Service only on un-appealed issues decided adverse to thegovernment. Generally, an Action on De-cision is issued where its guidance wouldbe helpful to Service personnel workingwith the same or similar issues. Unlike aTreasury Regulation or a Revenue Ruling,an Action on Decision is not an affirma-tive statement of Service position. It is notintended to serve as public guidance andmay not be cited as precedent.

Actions on Decisions shall be reliedupon within the Service only as conclu-sions applying the law to the facts in theparticular case at the time the Action onDecision was issued. Caution should beexercised in extending the recommenda-tion of the Action on Decision to similarcases where the facts are different. More-over, the recommendation in the Actionon Decision may be superseded by newlegislation, regulations, rulings, cases, orActions on Decisions.

Prior to 1991, the Service published ac-quiescence or nonacquiescence only incertain regular Tax Court opinions. The

Service has expanded its acquiescenceprogram to include other civil tax caseswhere guidance is determined to be help-ful. Accordingly, the Service now may ac-quiesce or nonacquiesce in the holdingsof memorandum Tax Court opinions, aswell as those of the United States DistrictCourts, Claims Court, and Circuit Courtsof Appeal. Regardless of the court decid-ing the case, the recommendation of anyAction on Decision will be published inthe Internal Revenue Bulletin.

The recommendation in every Actionon Decision will be summarized as ac-quiescence, acquiescence in result only,or nonacquiescence. Both “acquies-cence” and “acquiescence in result only”mean that the Service accepts the holdingof the court in a case and that the Servicewill follow it in disposing of cases withthe same controlling facts. However, “ac-quiescence” indicates neither approvalnor disapproval of the reasons assignedby the court for its conclusions; whereas,“acquiescence in result only” indicatesdisagreement or concern with some or allof those reasons. Nonacquiescence signi-fies that, although no further review wassought, the Service does not agree withthe holding of the court and, generally,will not follow the decision in disposingof cases involving other taxpayers. In ref-

erence to an opinion of a circuit court ofappeals, a nonacquiescence indicates thatthe Service will not follow the holding ona nationwide basis. However, the Servicewill recognize the precedential impact ofthe opinion on cases arising within thevenue of the deciding circuit.

The announcements published in theweekly Internal Revenue Bulletins areconsolidated semiannually and annually.The semiannual consolidation appears inthe first Bulletin for July and in the Cu-mulative Bulletin for the first half of theyear, and the annual consolidation ap-pears in the first Bulletin for the follow-ing January and in the Cumulative Bul-letin for the last half of the year.

The Commissioner ACQUIESCESinthe following decisions:

Pacific Enterprises and Subsidiariesv. Commissioner,101 T.C. 1 (1993)1

William R. Jackson v. Commissioner,108 T.C. 130 (1997)2

The Commissioner does not ACQUI-ESCEin the following decision:

Transwestern Pipeline Co. v. UnitedStates,639 F.2d 679 (Ct.Cl. 1980)3

Announcement Relating to Court Decisions

1 Acquiescence relating to whether the cost of recoverable cushion gas and recoverable line pack gas, the gas used to maintain adequate pressure in a gas storagefacility and a pipeline, respectively, is properly treated as (i) merchandise and thus included in inventory; (ii) a depreciable capital asset; or (iii) a nondepreciable cap-ital asset.2 Acquiescence in result only relating to whether Termination Payments from an insurance company to a former insurance agent constitute net earnings from self-employment within the meaning of section 1402(a) of the Internal Revenue Code (the Code) so as to be subject to tax under the Self-Employment Contributions Act(SECA).3 Nonacquiescence relating to whether the cost of recoverable line pack gas, the gas used to charge and operate an interstate natural gas pipeline system, is properlytreated as (i) merchandise and thus included in inventory; (ii) a depreciable capital asset, or (iii) a nondepreciable capital asset.

1997–52 I.R.B. 7 December 29, 1997

Section 1.—Tax Imposed

26 CFR 1.1–1: Income tax on individuals.

The Service provides adjusted tax tables for indi-viduals, trusts, and estates for taxable years begin-ning in 1998 to reflect changes in the cost of living.Also adjusted is the amount of certain reductions al-lowed against the unearned income of minor chil-dren in computing the “kiddie tax,” either on thechild’s return or, in the alternative, on a parent’s re-turn. The amounts used to determine whether a par-ent may elect to report the “kiddie tax” on the par-ent’s return are also adjusted. See Rev. Proc. 97–57,page 20.

Section 32.—Earned Income

26 CFR 1.32–2: Earned income credit for taxableyears beginning after December 31, 1978.

The Service provides inflation adjustments to thelimitations on the earned income tax credit for tax-able years beginning in 1998. See Rev. Proc. 97–57,page 20.

Section 62.—Adjusted GrossIncome Defined

26 CFR 1.62–2: Reimbursements and other expenseallowance arrangements.

Rules under which a reimbursement or other ex-pense allowance arrangement for the cost of operat-ing an automobile for business purposes will satisfythe requirements of section 62(c) of the Code as tobusiness connection, substantiation, and returningamounts in excess of expenses. See Rev. Proc.97–58, page 24.

Rules are set forth under which a reimbursementor other expense allowance arrangement for the costof lodging, meals, and incidental expenses or mealand incidental expenses incurred by an employeewhile traveling away from home will satisfy the re-quirements of § 62(c) of the Code as to substantia-tion of the amount of expenses. See Rev. Proc.97–59, page 31.

Section 63.—Taxable IncomeDefined

26 CFR 1.63–1:Change of treatment with respectto the zero bracket amount and itemized deductions.

The Service provides inflation adjustments to thestandard deduction amounts (including the limita-tion in the case of certain dependents, and the addi-tional standard deduction for the aged or blind) fortaxable years beginning in 1998. See Rev. Proc.97–57, page 20.

Section 68.—Overall Limitationon Itemized Deductions

The Service provides inflation adjustments to theoverall limitation on itemized deductions for taxableyears beginning in 1998. See Rev. Proc. 97–57, page 20.

Section 126.—CertainCost-Sharing Payments

26 CFR 16A.126–1: Certain cost-sharing payments—In general (Temporary).

Certain cost-sharing payments.TheWetlands Reserve Program, the Environ-mental Quality Incentives Program, andthe Wildlife Habitat Incentives Programare substantially similar to the type ofprograms described in section 126(a)(1)through (8) of the Code so that cost-sharepayments made under such programs andin connection with small watersheds arewithin the scope of section 126(a)(9) and,thereby, cost-share payments receivedunder the programs are eligible for exclu-sion from gross income to the extent per-mitted by section 126.

Rev. Rul. 97–55

ISSUE

Are the Wetlands Reserve Program, theEnvironmental Quality Incentives Pro-gram, and the Wildlife Habitat IncentivesProgram substantially similar to the typeof programs described in § 126(a)(1)through (8) of the Internal Revenue Codeso that cost-share payments made undersuch programs and in connection withsmall watersheds are within the scope of §126(a)(9) and, thereby, cost-share pay-ments received under the programs are el-igible for exclusion from gross income tothe extent permitted by § 126?

FACTS

The Wetlands Reserve Program(WRP), authorized by Title XII of theFood Security Act of 1985, Pub. L. No.99–198, 99 Stat. 1504, reauthorized bythe Federal Agriculture Improvement andReform Act of 1996 (the 1996 Farm Act),Pub. L. No. 104–127, 110 Stat. 995, is avoluntary wetlands conservation programto restore and protect wetlands on private

property. Landowners who participate inthe WRP may sell a conservation ease-ment or enter into a restoration cost-shareagreement with the Department of Agri-culture to restore and protect wetlands.Under a restoration cost-share agreement,a landowner agrees to undertake approvedconservation-related improvements on theproperty in return for a cost-share pay-ment, generally between 75 and 100 per-cent of the costs for restoring the wetland.A conservation easement and a restorationcost-share agreement may be combined inone agreement with the Department ofAgriculture but separate payments aremade for the easement and for the cost-share agreement.

The 1996 Farm Act also establishes theEnvironmental Quality Incentives Pro-gram (EQIP) and the Wildlife Habitat In-centives Program (WHIP). EQIPandWHIP are administered by the Depart-ment of Agriculture. EQIPcombines thefunctions of the Agricultural Conserva-tion Program (ACP), the Great PlainsConservation Program (GPCP), theWater Quality Incentives Program(WQIP), and the Colorado River BasinSalinity Control Program (CRBSCP).ACPand GPCPare programs enumeratedin § 126(a)(1) through (8) and the Com-missioner determined in § 16A.126–1(d)(1)(D) that CRBSCPwas within thescope of § 126(a)(9). WQIP was fundedthrough and administered under ACP.

WHIP was established to help partici-pants develop habitat for upland wildlife,wetland wildlife, threatened and endan-gered species, fish, and other types ofwildlife. Under WHIP, landowners enterinto wildlife habitat development cost-share contracts for a minimum of 10years.

The Secretary of Agriculture has madethe requisite determinations under § 126(b)(1)(A) that cost-share paymentsmade under WRP, EQIP, and WHIP areprimarily for purposes of conservation.

LAW AND ANALYSIS

Under § 126(a), gross income does notinclude the excludable portion of pay-ments made to taxpayers by federal andstate governments for a share of the costof improvements to property under cer-

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

December 29, 1997 8 1997–52 I.R.B.

tain conservation programs set forth in § 126(a)(1) through (8). Under § 126-(a)(9), programs affecting small water-sheds are eligible for § 126 treatment ifthey are administered by the Secretary ofAgriculture and are determined by theSecretary of the Treasury or the Secre-tary’s delegate to be substantially similarto the type of programs described in § 126(a)(1) through (8). Even if the Sec-retary of the Treasury determines that aparticular program is within the scope of§ 126(a)(9), not all cost-share paymentsunder such program will qualify for theexclusion under § 126. In addition to thedetermination requirement, the specificproject must be with respect to a smallwatershed and then only the “excludableportion” of any payment can qualify forexclusion. See §§ 126(b)(1), 16A.126–1(b)(5) and 16A.126–1(d)(3) for the defi-nitions of “excludable portion” and“small watershed.”

HOLDING

The Commissioner has determined thatWRP, EQIP, and WHIP are substantiallysimilar to the type of programs describedin § 126(a)(1) through (8) so that cost-share payments made under such pro-grams and in connection with smallwatersheds are within the scope of § 126(a)(9) and, thereby, cost-share pay-ments received under the programs are el-igible for exclusion from gross income tothe extent permitted by § 126. See § 16A.126–1 to determine what portion, ifany, of the cost-share payments are ex-cludable from gross income under § 126.

DRAFTING INFORMATION

The principal authors of this revenueruling are Leslie Finlow and Lisa Shumanof the Office of Assistant Chief Counsel(Passthroughs and Special Industries).For further information regarding thisrevenue ruling contact Ms. Shuman at(202) 622-3120 (not a toll-free call).

Section 132.—Certain FringeBenefits

The Service provides inflation adjustments to thelimitation on the exclusion of income for a qualifiedtransportation fringe for taxable years beginning in1998. See Rev. Proc. 97–57, page 20.

Section 135.—Income FromUnited States Savings BondsUsed To Pay Higher EducationTuition and Fees

The Service provides an inflation adjustment tothe limitation on the exclusion of income fromUnited States savings bonds for taxpayers who payqualified higher education expenses for taxableyears beginning in 1998. See Rev. Proc. 97–57, page 20.

Section 151.—Allowance ofDeductions for PersonalExemptions

26 CFR 1.151–4: Amount of deduction for each exemption under section 151.

The Service provides inflation adjustments to thepersonal exemption and to the threshold amounts ofadjusted gross income above which the exemptionamount phases out for taxable years beginning in1998. See Rev.Proc. 97–57, page 20.

Section 162.—Trade orBusiness Expenses

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

Rules are set forth for substantiating the amountof a deduction or expense for business use of an au-tomobile that most nearly represents current costs.See Rev. Proc. 97–58, page 24.

Rules are set forth for substantiating the amountof a deduction or expense for lodging, meals, and in-cidental expenses or meal and incidental expensesincurred while traveling away from home that mostnearly represents current costs. See Rev. Proc.97–59, page 31.

Section 167.—Depreciation

26 CFR 1.167(a) –1: Depreciation in general.

The cost of recoverable line pack gas or cushiongas is not depreciable, and the cost of nonrecover-able line pack gas or cushion gas is depreciable. SeeRev. Rul. 97–54, on this page.

Section 170.—Charitable, Etc.,Contributions and Gifts

26 CFR 1.170–1: Charitable, etc., contributionsand gifts; allowance of deductions.

The Service provides inflation adjustments to the“insubstantial benefit” guidelines for calendar year1998. Under the guidelines, a charitable contributionis fully deductible even though the contributor re-

ceives “insubstantial benefits” from the charity. SeeRev. Proc. 97–57, page 20.

26 CFR 1.170A–1: Charitable, etc., contributionsand gifts; allowance of deduction.

Rules are set forth for substantiating the amountof a deduction or expense for charitable use of anautomobile. See Rev. Proc. 97–58, page 24.

Section 213.—Medical, Dental,Etc., Expenses

The Service provides an inflation adjustment tothe limitation on the amount of eligible long-termcare premiums includible in the term “medical care”for taxable years beginning in 1998. See Rev. Proc.97–57, page 20.

26 CFR 1.213–1: Medical, dental, etc., expenses.

Rules are set forth for substantiating the amountof a deduction or expense for use of an automobileto obtain medical services. See Rev. Proc. 97–58,page 24.

Section 217.—Moving Expenses26 CFR 1.217–2: Moving expenses.

Rules are set forth for substantiating the amountof a deduction or expense for use of an automobileas part of a move. See Rev. Proc. 97–58, page 24.

Section 263.—CapitalExpenditures26 CFR 1.263(a)–1: Capital expenditures; in general.

The cost of recoverable and nonrecoverable linepack gas or cushion gas is a capital expenditure. SeeRev. Rul. 97–54, on this page.

26 CFR 1.263(a)–1: Capital expenditures; ingeneral.(Also sections 167, 168, 471; 1.167(a)–1, 1.471–1.)

Line pack gas; cushion gas.The costof recoverable line pack gas or cushiongas is a capital expenditure and is not de-preciable. The cost of nonrecoverable linepack gas or cushion gas is a capital expen-diture and is depreciable.

Rev. Rul. 97–54

ISSUES

(1) Is the cost of “line pack gas” or“cushion gas” a capital expenditure under§ 263 of the Internal Revenue Code or an

1997–52 I.R.B. 9 December 29, 1997

amount that is included in inventoryunder § 471?

(2) If the cost of “line pack gas” or“cushion gas” is a capital expenditureunder § 263, is that cost depreciable under§§ 167 and 168?

FACTS

“Line pack gas” is the minimum vol-ume of natural gas necessary to providethe pressure to facilitate the flow of gasthrough a pipeline. “Cushion gas” is theminimum volume of natural gas neces-sary to provide the pressure to facilitatethe flow of gas from a storage reservoir toa pipeline. Recoverable line pack gas andrecoverable cushion gas will be availablefor sale or other use upon the abandon-ment of the pipeline or storage reservoir,respectively. Unrecoverable line pack gasand unrecoverable cushion gas will not beavailable for sale or other use upon theabandonment of the pipeline or storagereservoir, but will become obsolete withthat abandonment.

LAW AND ANALYSIS

Section 263(a) provides that no deduc-tion shall be allowed for amounts paid outfor permanent improvements or better-ments made to increase the value of anyproperty or estate.

Section 1.263(a)–2 of the Income TaxRegulations provides that a “capital ex-penditure” includes the cost of acquisition,construction, or erection of buildings, ma-chinery and equipment, furniture and fix-tures, and similar property having a usefullife substantially beyond the tax year.

Section 167(a) provides that there shallbe allowed as a depreciation deduction areasonable allowance for the exhaustion,wear and tear (including a reasonable al-lowance for obsolescence) of propertyused in a trade or business or held for theproduction of income.

Generally, for tangible property, the de-preciation deduction under § 167(a) is de-termined under § 168 by using the applic-able depreciation method, the applicablerecovery period, and the applicable con-vention.

Section 471 provides that whenever, inthe opinion of the Secretary, the use of in-ventories is necessary in order clearly todetermine the income of any taxpayer, in-ventories shall be taken by that taxpayer,

on the basis the Secretary may prescribe asconforming as nearly as may be to the bestaccounting practice in the trade or businessand as most clearly reflecting income.

Section 1.471–1 provides that in orderto reflect income correctly, inventories atthe beginning and end of each tax year arenecessary in every case in which the pro-duction, purchase, or sale of merchandiseis an income-producing factor. Invento-ries should include all finished and partlyfinished goods and, in the case of raw ma-terials and supplies, only those that havebeen acquired for sale or that will physi-cally become a part of merchandise in-tended for sale.

Rev. Rul. 68–620, 1968–2 C.B. 199,amplified by Rev. Rul. 78–352, 1978–2C.B. 168, holds that line pack gas is mer-chandise in transit that is intended to besold to customers and therefore must beincluded in the inventory of the taxpayer.

Rev. Rul. 75–233, 1975–1 C.B. 95,holds that the cost of unrecoverable cush-ion gas is a capital expenditure under § 263, which is recoverable through an an-nual depreciation deduction under § 167.

With respect to both line pack gas andcushion gas, several court decisions haveconsidered the capital expenditure-ver-sus-inventory issue, as well as the depre-ciation issue. In Pacific Enterprises v.Commissioner, 101 T.C. 1 (1993), theUnited States Tax Court held that thecosts of line pack gas and cushion gas arecapital expenditures. Accord Transwest-ern Pipeline Co. v. United States, 639F.2d 679 (Ct.Cl. 1980), regarding linepack gas; Arkla, Inc. v. United States, 765F.2d 487 (5th Cir. 1985), regarding cush-ion gas. The United States Court of Ap-peals for the Fifth Circuit in Arkla furtherheld that recoverable cushion gas was notsubject to depreciation because it was notsubject to exhaustion, wear, tear, or obso-lescence. Accord Washington Energy Co.v. United States, 94 F.3d 1557 (Fed. Cir.1996). The Fifth Circuit in Arkla distin-guished unrecoverable cushion gas asbeing subject to depreciation because thatgas will become obsolete along with thestorage facility. Accord Rev. Rul. 75-233. Finally, in Arkla, Inc. v. UnitedStates, 37 F.3d 621 (Fed. Cir. 1994), theUnited States Court of Appeals for theFederal Circuit held that line pack gasand cushion gas are treated the same for

purposes of depreciation. Accord Wash-ington Energy Co. v. United States, 94F.3d 1557.

Line pack gas or cushion gas is recov-erable if it will be available for sale orother use upon abandonment of a pipelineor storage reservoir. See Arkla, Inc. v.United States, 765 F.2d at 490. The Ser-vice will treat line pack gas or cushion gasas being available for sale or other use tothe extent that such gas will be recoveredfrom an abandoned pipeline or storagereservoir pursuant to a plan, a require-ment of law, or economic feasibility,whichever method projects the greatestactual recovery of such gas.

The Service will follow the court deci-sions cited in this revenue ruling to theextent they hold that the cost of line packgas or cushion gas is a capital expendi-ture, the cost of recoverable line pack gasor recoverable cushion gas is not depre-ciable, and the cost of unrecoverable linepack gas or unrecoverable cushion gas isdepreciable.

HOLDINGS

(1) The cost of line pack gas or cushiongas is a capital expenditure under § 263.

(2) The cost of recoverable line packgas or recoverable cushion gas is not de-preciable, but the cost of unrecoverableline pack gas or unrecoverable cushiongas is depreciable under §§ 167 and 168.The Service will treat line pack gas orcushion gas as recoverable to the extentthat such gas will be recovered from anabandoned pipeline or storage reservoirpursuant to a plan, a requirement of law,or economic feasibility, whichevermethod projects the greatest actual recov-ery of such gas.

APPLICATION

Any change in a taxpayer’s treatmentof the costs of line pack gas or cushiongas to conform with this revenue ruling isa change in method of accounting towhich the provisions of §§ 446 and 481and the regulations thereunder apply. Ataxpayer wanting to change its method ofaccounting for the cost of line pack gas orcushion gas to conform with this revenueruling must follow the automatic changein accounting method provisions of Rev.Proc. 97–37, 1997–33 I.R.B. 18.

December 29, 1997 10 1997–52 I.R.B.

EFFECTON OTHER DOCUMENTS

Rev. Rul. 68–620 and Rev. Rul. 78–352are revoked. Rev. Rul. 75–233 is super-seded. Rev. Proc. 97–37 is amplified toinclude this change in the Appendix.

PROSPECTIVE APPLICATION

The Service will not require a taxpayerto change its method of accounting tocomply with the holding that the cost ofline pack gas or recoverable cushion gasis a capital expenditure for any taxableyear beginning before December 29,1997. In addition, the Service will not re-quire a taxpayer to change its method ofaccounting to comply with the holding fordetermining the amount of recoverableline pack gas or recoverable cushion gasfor any taxable year beginning before De-cember 29, 1997, provided the methodused by the taxpayer projects recoverableline pack gas or recoverable cushion gasin an amount equal to or greater than anamount that would be projected using aneconomic feasibility of recovery standard.


The principal author of this revenueruling is Jennifer L. Nuding of the Officeof Assistant Chief Counsel (Income Taxand Accounting). For further informationconcerning this revenue ruling, contactMs. Nuding at (202) 622-4970 (not a toll-free call).

Section 267.—Losses, Expenses,and Interest With Respect toTransactions Between RelatedTaxpayers

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 set forthfor the deemed substantiation to the payor of theamount of the employee’s ordinary and necessarybusiness expenses for lodging, meal, and/or inciden-tal expenses incurred while traveling away fromhome, do not apply. See Rev. Proc. 97–59, page 31.

Section 274.—Disallowance ofCertain Entertainment, Etc.,Expenses26 CFR 1.274(d)–1(a): Substantiation requirements.

Simplified optional method for substantiating theamount of a deduction or expense for business useof an automobile. See Rev. Proc. 97–58, page 24.

26 CFR 1.274–5T: Substantiation requirements(temporary).

Simplified optional method for substantiating theamount of a deduction or expense for business useof an automobile. See Rev. Proc. 97–58, page 24.

26 CFR 1.274(d)–1(a): Substantiation requirements.

Rules are set forth for substantiating the amountof ordinary and necessary business expense of anemployee for lodging, meals, and incidental ex-penses or meal and incidental expenses incurredwhile traveling away from home when a payor pro-vides a per diem allowance under a reimbursementor other expense allowance arrangement to pay forsuch expenses. See Rev. Proc. 97–59, page 31.

26 CFR 1.274–5T: Substantiation requirements (temporary).

Rules are set forth for substantiating the amountof ordinary and necessary business expense of anemployee for lodging, meals, and incidental ex-penses or meal and incidental expenses incurredwhile traveling away from home when a payor pro-vides a per diem allowance under a reimbursementor other expense allowance arrangement to pay forsuch expenses. Rules are also set forth for an op-tional method for employees and self-employed in-dividuals to use in computing the deductible costs ofbusiness meal and incidental expenses paid or in-curred while traveling away from home. See Rev.Proc. 97–59, page 31.

Section 471—General Rule forInventories26 CFR 1.471–1: Need for inventories.

The cost of recoverable and nonrecoverable linepack gas or cushion gas is a capital expenditure.Line pack gas or cushion gas in not inventory. SeeRev. Rul. 97–54, page 8.

Section 483.—Interest onCertain Deferred Payments26 CFR 1.483–1: Computation of interest on cer-tain deferred payments.

As defined by section 1274A, the definitions forboth “qualified debt instruments” and “cash methoddebt instruments” have dollar ceilings on the statedprincipal amount. The limits to the stated principalamount are adjusted for inflation for sales or ex-changes occurring in the 1998 calendar year. SeeRev. Rul. 97–56, page 11.

Section 512.—UnrelatedBusiness Taxable Income

The Service provides an inflation adjustment tothe maximum amount of annual dues that can bepaid to certain agricultural or horticultural organiza-tions without any portion being treated as unrelatedtrade or business income by reason of any benefits

or privileges available to members for taxable yearsbeginning in 1998. See Rev. Proc. 97–57, page 20.

Section 513.—Unrelated Tradeor Business

The Service provides an inflation adjustment tothe maximum amount of a “low cost article” for tax-able years beginning in 1998. Funds raised through acharity’s distribution of “low cost articles” will notbe treated as unrelated business income to the char-ity. See Rev. Proc. 97–57, page 20.

Section 877.—Expatriation toAvoid Tax

The Service provides an inflation adjustment toamounts used to determine whether an individual’sloss of United States citizenship had the avoidanceof United States taxes as one of its principal pur-poses for calendar year 1998. See Rev. Proc. 97–57,page 20.

Section 1274.—Determinationof Issue Price in the Case ofCertain Debt Instruments Issuedfor Property

26 CFR 1.1274A–1: Special rules for certain trans-actions where stated principal amount does not ex-ceed $2,800,000.

As defined by section 1274A, the definitions forboth “qualified debt instruments” and “cash methoddebt instruments” have dollar ceilings on the statedprincipal amount. The limits to the stated principalamount are adjusted for inflation for sales or ex-changes occurring in the 1998 calendar year. SeeRev. Rul. 97–56, page 10.

Section 1274A.—Special Rulesfor Certain Transactions WhereStated Principal Amount DoesNot Exceed $2,800,000

(Also §§ 1274, 483; 1.1274A–1)

Section 1274Ainflation-adjustednumbers for 1998.This ruling providesthe dollar amounts, increased by the 1998inflation adjustment, for section 1274Aofthe Code. Rev. Rul. 96–63 supplementedand superseded.

Rev. Rul. 97–56

This revenue ruling provides the dollaramounts, increased by the 1998 inflationadjustment, for § 1274Aof the InternalRevenue Code.

1997–52 I.R.B. 11 December 29, 1997

BACKGROUND

In general, §§ 483 and 1274 of theCode determine the principal amount of adebt instrument given in consideration forthe sale or exchange of nonpubliclytraded property. In addition, any intereston a debt instrument subject to § 1274 istaken into account under the original issuediscount provisions of the Code. Section1274A, however, modifies the rules under§§ 483 and 1274 for certain types of debtinstruments.

In the case of a “qualified debt instru-ment,” the discount rate used for purposesof §§ 483 and 1274 of the Code may notexceed 9 percent, compounded semiannu-ally. Section 1274A(b) defines a quali-fied debt instrument as any debt instrument given in consideration for thesale or exchange of property (other thannew § 38 property within the meaning of § 48(b), as in effect on the day before thedate of enactment of the Revenue Recon-ciliation Act of 1990) if the stated princi-pal amount of the instrument does not ex-ceed the amount specified in § 1274A(b).For debt instruments arising out of salesor exchanges before January 1, 1990, thisamount is $2,800,000.

In the case of a “cash method debt in-strument,” as defined in § 1274A(c) ofthe Code, the borrower and lender mayelect to use the cash receipts and dis-bursements method of accounting. Inparticular, for any cash method debt in-strument, § 1274 does not apply, and in-terest on the instrument is accounted forby both the borrower and the lenderunder the cash method of accounting. Acash method debt instrument is a quali-fied debt instrument that meets the fol-lowing additional requirements: (A) Inthe case of instruments arising out ofsales or exchanges before January 1,1990, the stated principal amount doesnot exceed $2,000,000, (B) The lenderdoes not use an accrual method of ac-counting and is not a dealer with respectto the property sold or exchanged, (C)Section 1274 would have applied to thedebt instrument but for an election under§ 1274A(c); and (D) An election under § 1274A(c) is jointly made with respectto the debt instrument by the borrowerand lender. Section 1.1274A–1(c)(1) ofthe Income Tax Regulations providesrules concerning the time for, and mannerof, making this election.

Section 1274A(d)(2) of the Code pro-vides that, for any debt instrument arisingout of a sale or exchange during any cal-endar year after 1989, the dollar amountsstated in § 1274A(b) and § 1274A(c)-(2)(A) are increased by the inflation adjustment for the calendar year. Any in-crease due to the inflation adjustment isrounded to the nearest multiple of $100(or, if the increase is a multiple of $50 andnot of $100, the increase is increased tothe nearest multiple of $100). The infla-tion adjustment for any calendar year isthe percentage (if any) by which the CPIfor the preceding calendar year exceedsthe CPI for calendar year 1988. Section1274A(d)(2)(B) defines the CPI for anycalendar year as the average of the Con-sumer Price Index as of the close of the12-month period ending on September 30of that calendar year.

INFLATION-ADJUSTED AMOUNTS

For debt instruments arising out ofsales or exchanges after December 31,1989, the inflation-adjusted amountsunder § 1274Aare shown in Table 1.

Rev. Rul. 97–56 Table 1Inflation-Adjusted Amounts Under § 1274A

Calendar Year 1274A(b) Amount 1274A(c)(2)(A) Amountof Sale (qualified debt (cash method debt

or Exchange instrument) instrument)

1990 $2,933,200 $2,095,1001991 $3,079,600 $2,199,7001992 $3,234,900 $2,310,6001993 $3,332,400 $2,380,3001994 $3,433,500 $2,452,5001995 $3,523,600 $2,516,9001996 $3,622,500 $2,587,5001997 $3,723,800 $2,659,9001998 $3,823,100 $2,730,800

Note: These inflation adjustments were computed using the All-Urban, ConsumerPrice Index, 1982-1984 base, published by the Bureau of Labor Statistics.


Rev. Rul. 96-63, 1996-2 C.B. 83, issupplemented and superseded.


The principal author of this revenueruling is David B. Silber of the Office ofthe Assistant Chief Counsel (Financial In-

stitutions and Products). For further in-formation regarding this revenue rulingcontact Mr. Silber on (202) 622-3930 (nota toll-free call).

December 29, 1997 12 1997–52 I.R.B.

Section 3221.—Rate of Tax

Determination of Quarterly Rateof Excise Tax for RailroadRetirement SupplementalAnnuity Program

In accordance with directions in Sec-tion 3221(c) of the Railroad RetirementTax Act (26 U.S.C., Section 3221(c)), theRailroad Retirement Board has deter-mined that the excise tax imposed by suchSection 3221(c) on every employer, withrespect to having individuals in his em-ploy, for each work-hour for which com-pensation is paid by such employer forservices rendered to him during the quar-ter beginning October 1, 1997, shall be atthe rate of 35 cents.

In accordance with directions in Sec-tion 15(a) of the Railroad Retirement Actof 1974, the Railroad Retirement Boardhas determined that for the quarter begin-ning October 1, 1997, 31.4 percent of thetaxes collected under Sections 3211(b)and 3221(c) of the Railroad RetirementTax Act shall be credited to the RailroadRetirement Account and 68.6 percent ofthe taxes collected under such Sections3211 (b) and 3221(c) plus 100 percent ofthe taxes collected under Section 3221(d)of the Railroad Retirement Tax Act shallbe credited to the Railroad RetirementSupplemental Account.

Dated: August 25, 1997.By Authority of the Board.

Beatrice Ezerski,Secretary to the Board.

(Filed by the Office of the Federal Register on Sep-tember 2, 1997, 8:45 a.m., and published in the issueof the Federal Register for September 3, 1997, 62F.R. 46526)

In accordance with directions in Sec-tion 3221(c) of the Railroad RetirementTax Act (26 U.S.C., Section 3221(c)), theRailroad Retirement Board has deter-mined that the excise tax imposed by suchSection 3221(c) on every employer, withrespect to having individuals in his em-ploy, for each work-hour for which com-pensation is paid by such employer forservices rendered to him during the quar-ter beginning January 1, 1998, shall be atthe rate of 35 cents.

In accordance with directions in Sec-tion 15(a) of the Railroad Retirement Actof 1974, the Railroad Retirement Boardhas determined that for the quarter begin-ning January 1, 1998, 31.6 percent of thetaxes collected under Sections 3211(b)and 3221(c) of the Railroad RetirementTax Act shall be credited to the RailroadRetirement Account and 68.4 percent ofthe taxes collected under such Sections3211 (b) and 3221(c) plus 100 percent ofthe taxes collected under Section 3221(d)of the Railroad Retirement Tax Act shallbe credited to the Railroad RetirementSupplemental Account.

Dated: December 2, 1997.By Authority of the Board.

Beatrice Ezerski,Secretary to the Board.

(Filed by the Office of the Federal Register on De-cember 9, 1997, 8:45 a.m., and published in theissue of the Federal Register for December 10, 1997,62 F.R. 65108)

Section 4001.—PassengerVehicles

The Service provides an inflation adjustment tothe price above which a passenger vehicle becomessubject to an excise tax for transactions occurring incalendar year 1998. See Rev. Proc. 97–57, page 20.

Section 4003.—Special RulesThe Service provides an inflation adjustment to

the price above which a passenger vehicle becomessubject to an excise tax for transactions occurring incalendar year 1998. (Price includes the price of in-stallation of parts or accessories on a passenger ve-hicle within six months of the date after the vehiclewas first placed in service.) See Rev. Proc. 97–57,page 20.

Section 6012.—PersonsRequired To Make Returns ofIncome26 CFR 1.6012–1:Individuals required to make re-turns of income.

The Service provides adjusted tax tables for indi-viduals and trusts and estates for taxable years be-ginning in 1998 to reflect changes in the cost of liv-ing. See Rev. Proc. 97–57, page 20.

26 CFR 1.6012–5: Composite return in lieu of specified form.

For the requirements for participation in the 1998Electronic Filing Program for the Form 1040 Series,see Rev. Proc. 97–60, page 38.

26 CFR 1.6012–5: Composite return in lieu of specified form.

For the requirements for participation in the 1998On-Line Filing Program for the Form 1040 Series,see Rev. Proc. 97–61, page 50.

Section 6013.—Joint Returns ofIncome Tax by Husband andWife26 CFR 1.6013–1: Joint returns.

The Service provides adjusted tax tables for indi-viduals for taxable years beginning in 1998 to reflectchanges in the cost of living. See Rev. Proc. 97–57,page 20.

Section 6033.—Returns byExempt Organizations

The Service provides an inflation adjustment tothe amount of dues certain exempt organizations cancharge and still be excepted from the reporting re-quirements for exempt organizations with nonde-ductible lobbying expenditures for taxable years be-ginning in 1998. See Rev. Proc. 97–57, page 20.

Section 6039F.—Notice ofLarge Gifts Received FromForeign Persons

The Service provides an inflation adjustment tothe amount of gifts in a taxable year from certainforeign person(s) that may trigger a reporting re-quirement for a United States person for taxableyears beginning in 1998. See Rev. Proc. 97–57, page 20.

Section 6061.—Signing ofReturns and Other Documents26 CFR 1.6061–1:Signing of returns and otherdocuments by individuals.

For the requirements for participation in the 1998Electronic Filing Program for the Form 1040 Series,see Rev. Proc. 97–60, page 38.

26 CFR 1.6061–1:Signing of returns and otherdocuments by individuals.

For the requirements for participation in the 1998On-Line Filing Program for the Form 1040 Series,see Rev. Proc. 97–61, page 50.

Section 6334.—PropertyExempt From Levy

The Service provides inflation adjustments to thevalue of certain property exempt from levy; for ex-ample, fuel, provisions, and personal effects as wellas books and tools of a trade, business, or professionfor calendar year 1998. See Rev. Proc. 97–57, page 20.

1997–52 I.R.B. 13 December 29, 1997

Section 6621.— Determinationof Interest Rate

26 CFR 301.6621–1: Interest rate.

Inter est rates; underpayments andoverpayments.The rate of interest deter-mined under section 6621 of the Code forthe calendar quarter beginning January 1,1998, will be 8 percent for overpayments,9 percent for underpayments, and 11 per-cent for large corporate underpayments.The rate of interst paid on the portion of acorporate overpayment exceeding$10,000 is 6.5 percent.

Rev. Rul. 97–53

Section 6621 of the Internal RevenueCode establishes different rates for inter-est on tax overpayments and interest ontax underpayments. Under § 6621(a)(1),the overpayment rate is the sum of thefederal short-term rate plus 2 percentagepoints, except the rate for the portion of acorporate overpayment of tax exceeding$10,000 for a taxable period is the sum ofthe federal short-term rate plus 0.5 of apercentage point for interest computationsmade after December 31, 1994. Under § 6621(a)(2), the underpayment rate is thesum of the federal short-term rate plus 3percentage points.

Section 6621(c) provides that for pur-poses of interest payable under § 6601 onany large corporate underpayment, the un-derpayment rate under § 6621(a)(2) is de-termined by substituting “5 percentagepoints” for “3 percentage points.” See § 6621(c) and § 301.6621–3 of the Regu-lations on Procedure and Administration

for the definition of a large corporate un-derpayment and for the rules for determin-ing the applicable date. Section 6621(c)and § 301.6621–3 are generally effectivefor periods after December 31, 1990.

Section 6621(b)(1) provides that theSecretary will determine the federal short-term rate for the first month in each calen-dar quarter.

Section 6621(b)(2)(A) provides that thefederal short-term rate determined under§ 6621(b)(1) for any month applies duringthe first calendar quarter beginning aftersuch month.

Section 6621(b)(2)(B) provides that indetermining the addition to tax under §6654 for failure to pay estimated tax forany taxable year, the federal short-termrate that applies during the third monthfollowing such taxable year also appliesduring the first 15 days of the fourthmonth following such taxable year.

Section 6621(b)(3) provides that thefederal short-term rate for any month isthe federal short-term rate determinedduring such month by the Secretary in ac-cordance with § 1274(d), rounded to thenearest full percent (or, if a multiple of1/2 of 1 percent, the rate is increased tothe next highest full percent).

Notice 88–59, 1988-1 C.B. 546, an-nounced that, in determining the quar-terly interest rates to be used for overpay-ments and underpayments of tax under §6621, the Internal Revenue Service willuse the federal short-term rate based ondaily compounding because that rate ismost consistent with § 6621 which, pur-suant to § 6622, is subject to daily com-pounding.

Rounded to the nearest full percent, thefederal short-term rate based on daily com-pounding determined during the month ofOctober 1997 is 6 percent. Accordingly,an overpayment rate of 8 percent and anunderpayment rate of 9 percent are estab-lished for the calendar quarter beginningJanuary 1, 1998. The overpayment rate forthe portion of a corporate overpayment ex-ceeding $10,000 for the calendar quarterbeginning January 1, 1998, is 6.5 percent.The underpayment rate for large corporateunderpayments for the calendar quarter be-ginning January 1, 1998, is 11 percent.These rates apply to amounts bearing inter-est during that calendar quarter.

The 9 percent rate also applies to esti-mated tax underpayments for the first cal-endar quarter in 1998 and for the first 15days in April 1998.

Interest factors for daily compound in-terest for annual rates of 6.5 percent, 8percent, 9 percent, and 11 percent arepublished in Tables 18, 21, 23, and 27 ofRev. Proc. 95–17, 1995–1 C.B. 556, 572,575, 577, and 581.

Annual interest rates to be compoundeddaily pursuant to § 6622 that apply forprior periods are set forth in the tables ac-companying this revenue ruling.


The principal author of this revenueruling is Raymond Bailey of the Office ofAssistant Chief Counsel (Income Tax andAccounting). For further information re-garding this revenue ruling, contact Mr.Bailey on (202) 622-6226 (not a toll-freecall).

TABLE OF INTERESTRATES

PERIODS BEFORE JUL. 1, 1975 - PERIODS ENDING DEC. 31, 1986

OVERPAYMENTS AND UNDERPAYMENTS – PERIOD

DAILY RATE TABLERATE IN 1995-1 C.B.

Before Jul. 1, 1975 6% Table 2, pg. 557Jul. 1, 1975—Jan. 31, 1976 9% Table 4, pg. 559Feb. 1, 1976—Jan. 31, 1978 7% Table 3, pg. 558Feb. 1, 1978—Jan. 31, 1980 6% Table 2, pg. 557Feb. 1, 1980—Jan. 31, 1982 12% Table 5, pg. 560Feb. 1, 1982—Dec. 31, 1982 20% Table 6, pg. 560Jan. 1, 1983—Jun. 30, 1983 16% Table 37, pg. 591Jul. 1, 1983—Dec. 31, 1983 11% Table 27, pg. 581Jan. 1, 1984—Jun. 30, 1984 11% Table 75, pg. 629

December 29, 1997 14 1997–52 I.R.B.

TABLE OF INTERESTRATES – Continued

PERIODS BEFORE JUL. 1, 1975 - PERIODS ENDING DEC. 31, 1986

OVERPAYMENTS AND UNDERPAYMENTS – PERIOD

DAILY RATE TABLERATE IN 1995-1 C.B.

Jul. 1, 1984—Dec. 31, 1984 11% Table 75, pg. 629Jan. 1, 1985—Jun. 30, 1985 13% Table 31, pg. 585Jul. 1, 1985—Dec. 31, 1985 11% Table 27, pg. 581Jan. 1, 1986—Jun. 30, 1986 10% Table 25 pg. 579Jul. 1, 1986—Dec. 31, 1986 9% Table 23, pg. 577

TABLE OF INTERESTRATES

FROM JAN. 1, 1987 - PRESENT

OVERPAYMENTS UNDERPAYMENTS

RATE TABLE PG RATE TABLE PG1995-1 C.B. 1995-1 C.B.

Jan. 1, 1987—Mar. 31, 1987 8% 21 575 9% 23 577Apr. 1, 1987—Jun. 30, 1987 8% 21 575 9% 23 577Jul. 1, 1987—Sep. 30, 1987 8% 21 575 9% 23 577Oct. 1, 1987—Dec. 31, 1987 9% 23 577 10% 25 579Jan. 1, 1988—Mar. 31, 1988 10% 73 627 11% 75 629Apr. 1, 1988—Jun. 30, 1988 9% 71 625 10% 73 627Jul. 1, 1988—Sep. 30, 1988 9% 71 625 10% 73 627Oct. 1, 1988—Dec. 31, 1988 10% 73 627 11% 75 629Jan. 1, 1989—Mar. 31, 1989 10% 25 579 11% 27 581Apr. 1, 1989—Jun. 30, 1989 11% 27 581 12% 29 583Jul. 1, 1989—Sep. 30, 1989 11% 27 581 12% 29 583Oct. 1, 1989—Dec. 31, 1989 10% 25 579 11% 27 581Jan. 1, 1990—Mar. 31, 1990 10% 25 579 11% 27 581Apr. 1, 1990—Jun. 30, 1990 10% 25 579 11% 27 581Jul. 1, 1990—Sep. 30, 1990 10% 25 579 11% 27 581Oct. 1, 1990—Dec. 31, 1990 10% 25 579 11% 27 581Jan. 1, 1991—Mar. 31, 1991 10% 25 579 11% 27 581Apr. 1, 1991—Jun. 30, 1991 9% 23 577 10% 25 579Jul. 1, 1991—Sep. 30, 1991 9% 23 577 10% 25 579Oct. 1, 1991—Dec. 31, 1991 9% 23 577 10% 25 579Jan. 1, 1992—Mar. 31, 1992 8% 69 623 9% 71 625Apr. 1, 1992—Jun. 30, 1992 7% 67 621 8% 69 623Jul. 1, 1992—Sep. 30, 1992 7% 67 621 8% 69 623Oct. 1, 1992—Dec. 31, 1992 6% 65 619 7% 67 621Jan. 1, 1993—Mar. 31, 1993 6% 17 571 7% 19 573Apr. 1, 1993—Jun. 30, 1993 6% 17 571 7% 19 573Jul. 1, 1993—Sep. 30, 1993 6% 17 571 7% 19 573Oct. 1, 1993—Dec. 31, 1993 6% 17 571 7% 19 573Jan. 1, 1994—Mar. 31, 1994 6% 17 571 7% 19 573Apr. 1, 1994—Jun. 30, 1994 6% 17 571 7% 19 573Jul. 1, 1994—Sep. 30, 1994 7% 19 573 8% 21 575Oct. 1, 1994—Dec. 31, 1994 8% 21 575 9% 23 577Jan. 1, 1995—Mar. 31, 1995 8% 21 575 9% 23 577

1997–52 I.R.B. 15 December 29, 1997

TABLE OF INTERESTRATES – Continued

FROM JAN. 1, 1987 - PRESENT

OVERPAYMENTS UNDERPAYMENTS

RATE TABLE PG RATE TABLE PG1995-1 C.B. 1995-1 C.B.

Apr. 1, 1995—Jun. 30, 1995 9% 23 577 10% 25 579Jul. 1, 1995—Sep. 30, 1995 8% 21 575 9% 23 577Oct. 1, 1995—Dec. 31, 1995 8% 21 575 9% 23 577Jan. 1, 1996—Mar. 31, 1996 8% 69 623 9% 71 625Apr. 1, 1996—Jun. 30, 1996 7% 67 621 8% 69 623Jul. 1, 1996—Sep. 30, 1996 8% 69 623 9% 71 625Oct. 1, 1996—Dec. 31, 1996 8% 69 623 9% 71 625Jan. 1, 1997—Mar. 31, 1997 8% 21 575 9% 23 577Apr. 1, 1997—Jun. 30, 1997 8% 21 575 9% 23 577Jul. 1, 1997—Sep. 30, 1997 8% 21 575 9% 23 577Oct. 1, 1997—Dec. 31, 1997 8% 21 575 9% 23 577Jan. 1, 1998—Mar. 31, 1998 8% 21 575 9% 23 577

TABLE OF INTERESTRATES FOR

LARGE CORPORATE UNDERPAYMENTS

FROM JANUARY 1, 1991 - PRESENTRATE TABLE PG

1995-1 C.B.

Jan. 1, 1991—Mar. 31, 1991 13% 31 585Apr. 1, 1991—Jun. 30, 1991 12% 29 583Jul. 1, 1991—Sep. 30, 1991 12% 29 583Oct. 1, 1991—Dec. 31, 1991 12% 29 583Jan. 1, 1992—Mar. 31, 1992 11% 75 629Apr. 1, 1992—Jun. 30, 1992 10% 73 627Jul. 1, 1992—Sep. 30, 1992 10% 73 627Oct. 1, 1992—Dec. 31, 1992 9% 71 625Jan. 1, 1993—Mar. 31, 1993 9% 23 577Apr. 1, 1993—Jun. 30, 1993 9% 23 577Jul. 1, 1993—Sep. 30, 1993 9% 23 577Oct. 1, 1993—Dec. 31, 1993 9% 23 577Jan. 1, 1994—Mar. 31, 1994 9% 23 577Apr. 1, 1994—Jun. 30, 1994 9% 23 577Jul. 1, 1994—Sep. 30, 1994 10% 25 579Oct. 1, 1994—Dec. 31, 1994 11% 27 581Jan. 1, 1995—Mar. 31, 1995 11% 27 581Apr. 1, 1995—Jun. 30, 1995 12% 29 583Jul. 1, 1995—Sep. 30, 1995 11% 27 581Oct. 1, 1995—Dec. 31, 1995 11% 27 581Jan. 1, 1996—Mar. 31, 1996 11% 75 629Apr. 1, 1996—Jun. 30, 1996 10% 73 627Jul. 1, 1996—Sep. 30, 1996 11% 75 629Oct. 1, 1996—Dec. 31, 1996 11% 75 629Jan. 1, 1997—Mar. 31, 1997 11% 27 581Apr. 1, 1997—Jun. 30, 1997 11% 27 581Jul. 1, 1997—Sep. 30, 1997 11% 27 581Oct. 1, 1997—Dec. 31, 1997 11% 27 581Jan. 1, 1998—Mar. 31, 1998 11% 27 581

December 29, 1997 16 1997–52 I.R.B.

Section 7430.—Awarding ofCosts and Certain Fees

The Service provides an inflation adjustment tothe hourly limit on attorney fees that may beawarded in a judgment or settlement of an adminis-trative or judicial proceeding concerning the deter-mination, collection, or refund of tax, interest, orpenalty for calendar year 1998. See Rev. Proc.97–57, page 20.

Section 7702B.—Treatment ofQualified Long-Term CareInsurance

The Service provides an inflation adjustment tothe stated dollar amount of the per diem limitationregarding periodic payments received under a quali-fied long-term care insurance contract or periodicpayments received under a life insurance contractthat are treated as paid by reason of the death of achronically ill individual for calendar year 1998. SeeRev. Proc. 97–57, page 20.

Section 7872.—Treatment ofLoans With Below-MarketInterest Rates

CPI adjustment for below-marketloans–1998.The amount that section7872(g) of the Code permits a taxpayer tolend to a qualified continuing care facilitywithout incurring imputed interest is pub-

lished and adjusted for inflation for years1987–1998. Rev. Rul. 96–64 supple-mented and superseded.

Rev. Rul. 97–57This revenue ruling publishes the

amount that § 7872(g) of the InternalRevenue Code permits a taxpayer to lendto a qualifying continuing care facilitywithout incurring imputed interest. Theamount is adjusted for inflation for theyears after 1986.

Section 7872 of the Code generallytreats loans bearing a below-market inter-est rate as if they bore interest at the mar-ket rate.

Section 7872(g)(1) of the Code pro-vides that, in general, § 7872 does notapply for any calendar year to any below-market loan made by a lender to a quali-fied continuing care facility pursuant to acontinuing care contract if the lender (orthe lender’s spouse) attains age 65 beforethe close of the year.

Section 7872(g)(2) of the Code pro-vides that, in the case of loans made afterOctober 11, 1985, and before 1987, § 7872(g)(1) applies only to the extentthat the aggregate outstanding amount ofany loan to which § 7872(g) applies (de-termined without regard to § 7872(g)(2)),

when added to the aggregate outstandingamount of all other previous loans be-tween the lender (or the lender’s spouse)and any qualified continuing care facilityto which § 7872(g)(1) applies, does notexceed $90,000.

Section 7872(g)(5) of the Code pro-vides that, for loans made during any cal-endar year after 1986 to which § 7872-(g)(1) applies, the $90,000 limit specifiedin § 7872(g)(2) is increased by an infla-tion adjustment. The inflation adjustmentfor any calendar year is the percentage (ifany) by which the Consumer Price Index(CPI) for the preceding calendar year ex-ceeds the CPI for calendar year 1985.Section 7872(g)(5) states that the CPI forany calendar year is the average of theCPI as of the close of the 12-month periodending on September 30 of that calendaryear.

Rev. Rul. 96–64, 1996-2 C.B. 199,publishes the amount specified in §7872(g)(2) of the Code, increased by theinflation adjustment, for the years 1987-97.

Table 1 sets forth the amount specifiedin § 7872(g)(2) of the Code. The amountis increased by the inflation adjustmentfor the years 1987–98.

TABLE OF INTERESTRATES FOR CORPORATE

OVERPAYMENTS EXCEEDING $10,000

FROM JANUARY 1, 1995 - PRESENT

RATE TABLE PG1995-1 C.B.

Jan. 1, 1995—Mar. 31, 1995 6.5% 18 572Apr. 1, 1995—Jun. 30, 1995 7.5% 20 574Jul. 1, 1995—Sep. 30, 1995 6.5% 18 572Oct. 1, 1995—Dec. 31, 1995 6.5% 18 572Jan. 1, 1996—Mar. 31, 1996 6.5% 66 620Apr. 1, 1996—Jun. 30, 1996 5.5% 64 618Jul. 1, 1996—Sep. 30, 1996 6.5% 66 620Oct. 1, 1996—Dec. 31, 1996 6.5% 66 620Jan. 1, 1997—Mar. 31, 1997 6.5% 18 572Apr. 1, 1997—Jun. 30, 1997 6.5% 18 572Jul. 1, 1997—Sep. 30, 1997 6.5% 18 572Oct. 1, 1997—Dec. 31, 1997 6.5% 18 572Jan. 1, 1998—Mar. 31, 1998 6.5% 18 572

1997–52 I.R.B. 17 December 29, 1997


Rev. Rul. 96–64, 1996–2 C.B. 199, issupplemented and superseded.


The author of this revenue ruling isDavid B. Silber of the Office of Assistant

Chief Counsel (Financial Institutions andProducts). For further information regard-ing this revenue ruling, contact Mr. Silberon (202) 622-3930 (not a toll-free call).

REV. RUL. 97–57 TABLE 1

Limit under 7872(g)(2)

Year Amount

Before 1987 $ 90,0001987 $ 92,2001988 $ 94,8001989 $ 98,8001990 $103,5001991 $108,6001992 $114,1001993 $117,5001994 $121,1001995 $124,3001996 $127,8001997 $131,3001998 $134,800

Note: These inflation adjustments were computed using the All-Urban, Consumer Price Index 1982-1984 base, published by the Bureau of Labor Statistics.

December 29, 1997 18 1997–52 I.R.B.

Partnership Magnetic MediaFiling Requirements

Notice 97–77

PURPOSE

This notice provides guidance to part-nerships having more than 100 partnersregarding the requirement to file partner-ship tax returns on magnetic media under§ 6011(e) of the Internal Revenue Code,as amended by § 1224 of the TaxpayerRelief Act of 1997 (Act), Pub. L. 105-34,111 Stat. 788 (August 5, 1997).

BACKGROUND

Section 6011(e)(1) generally providesthat the Secretary will prescribe regula-tions providing standards for determiningwhich returns must be filed on magneticmedia or in other machine-readable form.

Section 6011(e)(2) defines the require-ments of the regulations, and providesthat, in prescribing the regulations under§ 6011(e)(1), the Secretary will not re-quire any person to file returns on mag-netic media unless such person is re-quired to file at least 250 returns duringthe calendar year, and will take into ac-count (among other relevant factors) theability of the taxpayer to comply at rea-sonable cost with the requirements ofsuch regulations.

Section 1224 of the Act amended § 6011(e)(2) to provide that the Secretarywill require partnerships having morethan 100 partners to file returns on mag-netic media. Section 1226 of the Act pro-vides that § 1224 is effective for tax yearsending on or after December 31, 1997.However, the legislative history of theAct, as provided in H.R. Conf. Rep. No.220, 105th Cong., 1st Sess. 675 (1997),indicates that § 1224 is effective for taxyears beginning after December 31, 1997.The Tax Technical Corrections Act of1997, which is currently pending in Con-gress, provides that the effective date in §1226 of the Act is for partnership taxyears beginning after December 31, 1997.H.R. 2645, 105th Cong., 1st Sess. § 11(c)(1997).

TAX YEARS BEGINNING AFTER DECEMBER 31, 1997

The Service intends to implement § 1224 of the Act by issuing regulationsas required by § 6011(e). The regulationswill address the mandatory magneticmedia filing requirements for Form 1065,U.S. Partnership Return of Income, forSchedules K-1, Shareholder’s Share of In-come, Credits, Deductions, etc., and forall other related forms and schedules.These regulations, however, will only ad-dress the requirements for tax years be-ginning after December 31, 1997.

TAX YEARS BEGINNING BEFOREJANUARY 1, 1998

The Service will not require magneticmedia filing of partnership tax returns forpartnership tax years beginning beforeJanuary 1, 1998. Therefore, a partnershipwith more than 100 partners will not berequired to file its partnership tax returnon magnetic media for a tax year endingDecember 31, 1997, and no penalties willbe imposed on the partnership for not fil-ing such partnership tax return on mag-netic media.


The principal author of this notice isBridget E. Finkenaur of the Office of As-sistant Chief Counsel (Income Tax andAccounting). For further information re-garding this notice, contact Ms. Finkenaurat (202) 622-4940 (not a toll-free number).

26 CFR 601.105: Examination of returns andclaims for refund, credit or abatement; determina-tion of correct tax liability. (Also Part I, § 6662.)

Rev. Proc. 97–56

SECTION 1. PURPOSE.01 This revenue procedure updates

Rev. Proc. 96-58, 1996–2 C.B. 390 andidentifies circumstances under which thedisclosure on a taxpayer’s return of a po-sition with respect to an item is adequatefor the purpose of reducing the under-statement of income tax under § 6662(d)

of the Internal Revenue Code (relating tothe substantial understatement aspect ofthe accuracy-related penalty), and for thepurpose of avoiding the preparer penaltyunder § 6694(a) (relating to understate-ments due to unrealistic positions). Thisrevenue procedure does not apply with re-spect to any other penalty provision (in-cluding the negligence or disregard provi-sions of the § 6662 accuracy-relatedpenalty).

.02 This revenue procedure applies toany return filed on 1997 tax forms for ataxable year beginning in 1997, and toany return filed on 1997 tax forms in 1998for short taxable years beginning in 1998.

SEC. 2. CHANGES FROM REV.PROC. 96-58

Editorial changes only have been madein this revenue procedure.

SEC. 3. BACKGROUND.01 If § 6662 applies to any portion of

an underpayment of tax required to beshown on a return, an amount equal to 20percent of the portion of the underpay-ment to which the section applies isadded to the tax. (The penalty rate is 40percent in the case of certain gross valua-tion misstatements.) Under § 6662(b)(2),§ 6662 applies to the portion of an under-payment that is attributable to a substan-tial understatement of income tax.

.02 Section 6662(d)(1) provides thatthere is a substantial understatement of in-come tax if the amount of the understate-ment exceeds the greater of 10 percent ofthe amount of tax required to be shown onthe return for the taxable year or $5,000($10,000 in the case of a corporationother than an S corporation or a personalholding company). Section 6662(d)(2)defines an understatement as the excess ofthe amount of tax required to be shown onthe return for the taxable year over theamount of the tax that is shown on the re-turn reduced by any rebate (within themeaning of § 6211(b)(2)).

.03 In the case of an item not attribut-able to a tax shelter, § 6662(d)(2)(B)(ii)provides that the amount of the under-statement is reduced by the portion of the

Part III. Administrative, Procedural, and Miscellaneous

1997–52 I.R.B. 19 December 29, 1997

understatement attributable to any itemwith respect to which the relevant factsaffecting the item’s tax treatment are ade-quately disclosed on the return or on astatement attached to the return, and thereis a reasonable basis for the tax treatmentof such item by the taxpayer.

.04 In general, this revenue procedureprovides guidance in determining whendisclosure is adequate for purposes of § 6662(d). For purposes of this revenueprocedure, the taxpayer must furnish allrequired information in accordance withthe applicable forms and instructions, andthe money amounts entered on theseforms must be verifiable. Guidance under§ 6662(d) for returns filed in 1995, 1996,and 1997 is provided in Rev. Proc. 94–74,1994–2 C.B. 823; Rev. Proc. 95–55,1995–2 C.B. 457; and Rev. Proc.96–58,1996–2 C.B. 390, respectively.

SEC. 4. PROCEDURE

.01 Additional disclosure of facts rele-vant to, or positions taken with respect to,issues involving any of the items set forthbelow is unnecessary for purposes of re-ducing any understatement of income taxunder § 6662(d) provided that the formsand attachments are completed in a clearmanner and in accordance with their in-structions. The money amounts enteredon the forms must be verifiable, and theinformation on the return must be dis-closed in the manner described below.For purposes of this revenue procedure, anumber is verifiable if, on audit, the tax-payer can demonstrate the origin of thenumber (even if that number is not ulti-mately accepted by the Internal RevenueService) and the taxpayer can show goodfaith in entering that number on the ap-plicable form.

(1) Form 1040, Schedule A, ItemizedDeductions:

(a) Medical and Dental Expenses:Complete lines 1 through 4, supplying allrequired information.

(b) Taxes: Complete lines 5 through 9,supplying all required information. Line8 must list each type of tax and theamount paid.

(c) Interest Expense: Complete lines10 through 14, supplying all required in-formation. This section 4.01(1)(c) does

not apply to (i) amounts disallowed under§ 163(d) unless Form 4952, InvestmentInterest Expense Deduction, is completed,or (ii) amounts disallowed under § 265.

(d) Contributions: Complete lines 15through 18, supplying all required infor-mation. Merely entering the amount ofthe donation on Schedule A, however, willnot constitute adequate disclosure if thetaxpayer receives a substantial benefitfrom the donation shown. If a contribu-tion of property other than cash is madeand the amount claimed as a deduction ex-ceeds $500, a properly completed Form8283, Noncash Charitable Contributions,must be attached to the return. This sec-tion 4.01(1)(d) will not apply to any con-tribution of $250 or more unless the con-temporaneous written acknowledgementrequirement of § 170(f)(8) is satisfied.

(e) Casualty and Theft Losses: Com-plete Form 4684, Casualties and Thefts,and attach to the return. Each item or arti-cle for which a casualty or theft loss isclaimed must be listed on Form 4684.

(2) Certain Trade or Business Expenses(including, for purposes of this section4.01(2), the following six expenses asthey relate to the rental of property):

(a) Casualty and Theft Losses: Theprocedure outlined in section 4.01(1)(e)above must be followed.

(b) Legal Expenses: The amountclaimed must be stated. This section4.01(2)(b) does not apply, however, toamounts properly characterized as capitalexpenditures, personal expenses, or nond-eductible lobbying or political expendi-tures, including amounts that are requiredto be (or that are) amortized over a periodof years.

(c) Specific Bad Debt Charge-off: Theamount written off must be stated.

(d) Reasonableness of Officers’ Com-pensation: Form 1120, Schedule E, Com-pensation of Officers, must be completedwhen required by its instructions. Thetime devoted to business must be ex-pressed as a percentage as opposed to“part” or “as needed.” This section4.01(2)(d) does not apply to “golden para-chute” payments, as defined under § 280G.This section 4.01(2)(d) will not apply tothe extent that remuneration paid or in-curred exceeds the $1 million employee re-muneration limitation, if applicable.

(e) Repair Expenses: The amountclaimed must be stated. This section4.01(2)(e) does not apply, however, toany repair expenses properly character-ized as capital expenditures or personalexpenses.

(f) Taxes (other than foreign taxes):The amount claimed must be stated.

(3) Form 1120, Schedule M–1, Recon-ciliation of Income (Loss) per Books WithIncome per Return, provided:

(a) The amount of the deviation fromthe financial books and records is not theresult of a computation that includes thenetting of items; and

(b) The information provided reason-ably may be expected to apprise the Inter-nal Revenue Service of the nature of thepotential controversy concerning the taxtreatment of the item.

(4) Foreign Tax Items:(a) International Boycott Transactions:

Transactions disclosed on Form 5713, In-ternational Boycott Report.

(b) Intercompany Transactions: Trans-actions and amounts shown on ScheduleM (Form 5471), Transactions BetweenControlled Foreign Corporation andShareholders or Other Related Persons,lines 19 and 20, and Form 5472, Part IV,Monetary Transactions Between Report-ing Corporations and Foreign RelatedParty, lines 7 and 18.

(5) Other:(a) Moving Expenses: Complete Form

3903, Moving Expenses, or Form 3903-F,Foreign Moving Expenses, and attach tothe return.

(b) Sale or Exchange of Your MainHome: Complete Form 2119, Sale ofYour Home, and attach to the return.

(c) Employee Business Expenses:Complete Form 2106, Employee Busi-ness Expenses, or Form 2106–EZ, Unre-imbursed Employee Business Expenses,and attach to the return. This section4.01(5)(c) does not apply to club dues, orto travel expenses for any non-employeeaccompanying the taxpayer on a trip.

(d) Fuels Credit: Complete Form4136, Credit for Federal Tax Paid onFuels, and attach to the return.

(e) Investment Credit: CompleteForm 3468, Investment Credit, and at-tach to the return.

December 29, 1997 20 1997–52 I.R.B.

SECTION 1. PURPOSEThis revenue procedure sets forth infla-

tion adjusted items for 1998.

SECTION 2. CHANGES MADEFROM PRECEDING YEAR

.01 In preceding years, this revenueprocedure included a detailed descriptionof each inflation adjusted item in former

section 3, a technical explanation of theauthority for each inflation adjustment informer section 4 and the inflation factorsused to make the inflation adjustments informer section 5. To simplify this revenueprocedure, section 3 has been revised, andsections 4 and 5 have been deleted.

.02 The limitations regarding theamount of eligible long-term care premi-ums includible in the term “medical care”

under § 213(d)(10) of the Internal Rev-enue Code, as enacted by section 322 ofthe Health Insurance Portability and Ac-countability Act of 1996, Pub. L. No.104–191, 110 Stat. 1936 (1996), are ad-justed for inflation for tax years beginningin 1998 (section 3.09).

.03 The value of property exempt fromlevy under § 6334(a)(2) (fuel, certainhousehold items, arms for personal use,

SEC. 5. EFFECTIVE DATE

.01 This revenue procedure applies toany return filed on 1997 tax forms for ataxable year beginning in 1997, and to anyreturn filed on 1997 tax forms in 1998 forshort taxable years beginning in 1998.

SEC. 6. DRAFTING INFORMATION

The principal author of this revenueprocedure is Marcia Rachy of the Officeof Assistant Chief Counsel (Income Taxand Accounting). For further information

regarding this revenue procedure, contactMs. Rachy on (202) 622-6232 (not a toll-free call).

26 CFR 601.602: Tax forms and instructions. (Also Part I, §§ 1, 32, 63, 68, 132, 135, 151, 170, 213, 512, 513, 877, 4001, 4003, 6012, 6013, 6033, 6039F, 6334, 7430, 7702B; 1.1–1, 1.32–2, 1.63–1, 1.151–4,1.170–1, 1.6012–1, 1.6013–1)

Rev. Proc. 97–57Table of Contents

SECTION 1. PURPOSE

SECTION 2. CHANGES MADE FROM PRECEDING YEAR

SECTION 3. 1998 ADJUSTED ITEMS

Code Section

.01 Tax Rate Tables 1(a)-(e)

.02 Unearned Income of Minor Children Taxed as if Parent’s Income (“Kiddie Tax”) 1(g)

.03 Earned Income Tax Credit 32

.04 Standard Deduction 63

.05 Overall Limitation on Itemized Deductions 68

.06 Qualified Transportation Fringe 132(f)

.07 Income from United States Savings Bonds for Taxpayers Who Pay Qualified Higher Education Expenses 135

.08 Personal Exemption 151

.09 Eligible Long-Term Care Premiums 213(d)(10)

.10 Treatment of Dues Paid to Agricultural or Horticultural Organizations. 512(d)

.11 Insubstantial Benefit Limitations for Contributions Associated with Charitable Fund-Raising Campaigns 513(h)

.12 Expatriation to Avoid Tax 877

.13 Luxury Automobile Excise Tax 4001 & 4003

.14 Reporting Exception for Certain Exempt Organizations with Nondeductible Lobbying Expenditures 6033(e)(3)

.15 Notice of Large Gifts Received from Foreign Persons 6039F

.16 Property Exempt from Levy 6334

.17 Attorney Fee Awards 7430

.18 Periodic Payments Received under Qualified Long-Term Care Insurance Contracts 7702B(d)

SECTION 4. EFFECTIVE DATE

SECTION 5. DRAFTING INFORMATION

1997–52 I.R.B. 21 December 29, 1997

TABLE 1–Section 1(a).—MARRIED INDIVIDUALS FILING JOINTRETURNS AND SURVIVING SPOUSES

If Taxable Income Is: The Tax Is:

Not Over $42,350 15% of the taxable income

Over $42,350 but not over $102,300 $6,352.50 plus 28% of the excess over $42,350


Over $155,950 but not over $278,450 $39,770 plus 36% of the excess over $155,950

Over $278,450 $83,870 plus 39.6% of the excess over $278,450

TABLE 2 - Section 1(b).—HEADS OF HOUSEHOLDS






Over $278,450 $86,097.50 plus 39.6% of the excess over $278,450

TABLE 3–Section 1(c).—UNMARRIED INDIVIDUALS (OTHER THAN SURVIVING SPOUSES AND HEADS OF HOUSEHOLDS)






Over $278,450 $88,699.50 plus 39.6% of the excess over $278,450

livestock, and poultry) and under §6334(a)(3) (books and tools of a trade,business, or profession), as amended bysection 502 of the Taxpayer Bill of Rights2, Pub. L. No. 104–168, 110 Stat. 1452(1996), is adjusted for inflation for calen-dar year 1998 (section 3.16).

.04 The stated dollar amount of the perdiem limitation under § 7702B(d)(4), as

enacted by section 321 of the Health In-surance Portability and AccountabilityAct of 1996, Pub. L. No. 104–191, 110Stat. 1936 (1996), regarding periodic pay-ments received under a qualified long-term care insurance contract or periodicpayments received under a life insurancecontract that are treated as paid by reasonof the death of a chronically ill individual,

is adjusted for inflation for calendar year1998 (section 3.18).

SECTION 3. 1998 ADJUSTEDITEMS

.01 Tax Rate Tables. For tax years be-ginning in 1998, the tax rate tables under§ 1 are as follows:

December 29, 1997 22 1997–52 I.R.B.

The Internal Revenue Service, in theinstructions for the Form 1040 series, pro-vides tables showing the amount of theearned income tax credit for each type oftaxpayer.

(2) Excessive investment income.For tax years beginning in 1998, theearned income tax credit is denied under §32(i) if the aggregate amount of certaininvestment income exceeds $2,300.

.04 Standard Deduction.(1) In general. For tax years begin-

ning in 1998, the standard deductionamounts under § 63(c)(2) are as follows:

Standard Filing Status Deduction

MARRIED INDIVIDUALS FILING JOINT RETURNS AND SURVIVING SPOUSES(§ 1(a)) $7,100

HEADS OF HOUSEHOLDS (§ 1(b)) $6,250

UNMARRIED INDIVIDUALS (OTHER THAN SURVIVINGSPOUSES AND HEADS OF HOUSEHOLDS) (§ 1(c)) $4,250

MARRIED INDIVIDUALS FILING SEPARATE RETURNS (§ 1(d)) $3,550

(2) Dependent. For tax years begin-ning in 1998, the standard deductionamount under § 63(c)(5) for an individualwho may be claimed as a dependent by

.02 Unearned Income of Minor Chil-dren Taxed as if Parent’s Income (the“Kiddie Tax”) . For tax years beginningin 1998, the amount in § 1(g)(4)(A)(ii)(I),which is used to reduce the net unearnedincome reported on the child’s return thatis subject to the “kiddie tax,” is $700.(This amount is the same as the $700standard deduction amount provided insection 3.04(2) of this revenue proce-dure.) In the alternative, the same $700

amount is used for purposes of § 1(g)(7)(that is, determining whether a parentmay elect to include a child’s gross in-come in the parent’s gross income and forcalculating the “kiddie tax”).

.03 Earned Income Tax Credit.(1) In general. For tax years begin-

ning in 1998, the following amounts areused to determine the earned income taxcredit under § 32(b). The “earned incomeamount” is the amount of earned income

at or above which the maximum amountof the earned income tax credit is al-lowed. The “threshold phaseout amount”is the amount of modified adjusted grossincome (or, if greater, earned income)above which the maximum amount of thecredit begins to phase out. The “com-pleted phaseout amount” is the amount ofmodified adjusted gross income (or ifgreater, earned income) at or above whichno credit is allowed.

Maximum Threshold CompletedNumber Amount of Earned Income Phaseout Phaseoutof Children the Credit Amount Amount Amount

1 $2,271 $6,680 $12,260 $26,4732 or more $3,756 $9,390 $12,260 $30,095None $ 341 $4,460 $ 5,570 $10,030

TABLE 4–Section 1(d).—MARRIED INDIVIDUALS FILING SEPARATE RETURNS







TABLE 5–Section 1(e).—ESTATES AND TRUSTS



Over $1,700 but not over $4,000 $255 plus 28% of the excess over $1,700

Over $4,000 but not over $6,100 $899 plus 31% of the excess over $4,000



1997–52 I.R.B. 23 December 29, 1997

another taxpayer may not exceed thegreater of $700, or the sum of $250 andthe individual’s earned income.

(3) Aged and blind. For tax yearsbeginning in 1998, the additional standarddeduction amounts under § 63(f) for theaged and for the blind are $850 for each.These amounts are increased to $1,050 ifthe individual is also unmarried and not asurviving spouse.

.05 Overall Limitation on Itemized De-ductions. For tax years beginning in1998, the “applicable amount” of adjustedgross income under § 68(b), above whichthe amount of otherwise allowable item-ized deductions is reduced under § 68, is$124,500 (or $62,250 for a separate returnfiled by a married individual).

.06 Qualified Transportation Fringe.For tax years beginning in 1998, themonthly limitation under § 132(f)(2)(A),regarding the aggregate fringe benefit ex-clusion amount for transportation in acommuter highway vehicle and any tran-sit pass, is $65. The monthly limitationunder § 132(f)(2)(B) regarding the fringebenefit exclusion amount for qualifiedparking is $175.

.07 Income from United States SavingsBonds for Taxpayers Who Pay QualifiedHigher Education Expenses. For taxyears beginning in 1998, the exclusionunder § 135, regarding income fromUnited States savings bonds for taxpayerswho pay qualified higher education ex-penses, begins to phase out for modifiedadjusted gross income above $78,350 forjoint returns and $52,250 for other re-turns. This exclusion completely phasesout for modified adjusted gross income of$108,350 or more for joint returns and$67,250 or more for other returns.

.08 Personal Exemption.(1) Exemption amount. For tax years

beginning in 1998, the personal exemp-tion amount under § 151(d) is $2,700.

(2) Phaseout. For tax years begin-ning in 1998, the personal exemptionamount begins to phase out at, and iscompletely phased out after, the followingadjusted gross income amounts:

Threshold CompletedPhaseout Phaseout

Filing Status Amount Amount After

Code § 1(a) $186,800 $309,300Code § 1(b $155,650 $278,150Code § 1(c) $124,500 $247,000Code § 1(d) $ 93,400 $154,650

.09 Eligible Long-Term Care Premi-ums. For tax years beginning in 1998, thelimitations under § 213(d), regarding eli-gible long- term care premiums includiblein the term “medical care,” are as follows:

Attained age before the close of the taxable year:

40 or less . . . . . . . . . . . . . . . . . . . . . .$ 210More than 40 but not more than 50 . . .$ 380More than 50 but not more than 60 . . .$ 770More than 60 but not more than 70 . .$2,050More than 70 . . . . . . . . . . . . . . . . . . .$2,570

.10 Treatment of Dues Paid to Agricul-tural or Horticultural Organizations. Fortax years beginning in 1998, the limita-tion under § 512(d)(1), regarding the ex-emption of annual dues required to bepaid by a member to an agricultural orhorticultural organization, is $109.

.11 Insubstantial Benefit Limitationsfor Contributions Associated with Chari-table Fund-Raising Campaigns.

(1) Low cost article. For tax yearsbeginning in 1998, the unrelated businessincome of certain exempt organizationsunder § 513(h)(2) does not include a “lowcost article” of $7.10 or less.

(2) Other insubstantial benefits. Fortax years beginning in 1998, the $5, $25,and $50 guidelines in section 3 of Rev.Proc. 90-12, 1990-1 C.B. 471 (as ampli-fied and modified), for disregarding thevalue of insubstantial benefits received bya donor in return for a fully deductiblecharitable contribution under § 170, are$7.10, $35.50, and $71, respectively.

12 Expatriation to Avoid Tax. For cal-endar year 1998, the thresholds usedunder § 877(a)(2), regarding whether anindividual’s loss of United States citizen-ship had the avoidance of United Statestaxes as one of its principal purposes, aremore than $109,000 for “average annualnet income tax” and $543,000 or more for“net worth.”

.13 Luxury Automobile Excise Tax. Forcalendar year 1998, the excise tax under§§ 4001 and 4003 is imposed on the firstretail sale of a passenger vehicle (includ-ing certain parts or accessories installedwithin six months of the date after the ve-hicle was first placed in service), to theextent the price exceeds $36,000.

.14 Reporting Exception for CertainExempt Organizations with Nonde-ductible Lobbying Expenditures. For tax

years beginning in 1998, the annual perperson, family, or entity dues limitation toqualify for the reporting exception under§ 6033(e)(3) (and section 4.02 of Rev.Proc. 95–35, 1995–2 C.B. 391), regardingcertain exempt organizations with nonde-ductible lobbying expenditures, is $55 orless.

.15 Notice of Large Gifts Received fromForeign Persons. For tax years beginningin 1998, recipients of gifts from certainforeign persons may have to report thesegifts under § 6039F if the aggregate valueof gifts received in a taxable year exceeds$10,557.

.16 Property Exempt from Levy. Forcalendar year 1998, the value of propertyexempt from levy under § 6334(a)(2)(fuel, provisions, furniture, and otherhousehold personal effects, as well asarms for personal use, livestock, andpoultry) may not exceed $2,570. Thevalue of property exempt from levy under§ 6334(a)(3) (books and tools necessaryfor the trade, business, or profession ofthe taxpayer) may not exceed $1,280.

.17 Attorney Fee Awards. For calendaryear 1998, the attorney fee award limita-tion under § 7430(c)(1)(B)(iii) is $120 perhour.

.18 Periodic Payments Received underQualified Long-Term Care InsuranceContracts or under Certain Life Insur-ance Contracts. For calendar year 1998,the stated dollar amount of the per diemlimitation under § 7702B(d)(4), regardingperiodic payments received under a quali-fied long-term care insurance contract orperiodic payments received under a lifeinsurance contract that are treated as paidby reason of the death of a chronically illindividual, is $180.


.01 General Rule. Except as providedin section 4.02, this revenue procedureapplies to tax years beginning in 1998.

.02 Calendar Year Rule. This revenueprocedure applies to transactions orevents occurring in calendar year 1998 forpurposes of section 3.12 (the expatriationtax), section 3.13 (the excise tax on lux-ury automobiles), section 3.16 (the valueof certain property exempt from levy),section 3.17 (the hourly limit on attorneyfee awards), and section 3.18 (the perdiem limitation for periodic payments re-

December 29, 1997 24 1997–52 I.R.B.

ceived under qualified long-term care in-surance contracts).

SECTION 5. DRAFTING INFORMATION

The principal author of this revenueprocedure is John Moran of the Office ofAssistant Chief Counsel (Income Tax andAccounting). For further information re-garding this revenue procedure, contactMr. Moran on (202) 622-4940 (not a toll-free call).

26 CFR 601.105: Examination of returns andclaims for refund, credit, or abatement; determina-tion of correct tax liability. (Also Part I, sections 62, 162, 274, 1016; 1.62–2,1.162–17, 1.274–5T, 1.274(d)–1, 1.1016–3.)

Rev. Proc. 97–58

SECTION 1. PURPOSEThis revenue procedure updates Rev.

Proc. 96–63, 1996–2 C.B. 420, by provid-ing optional standard mileage rates foremployees, self-employed individuals, orother taxpayers to use in computing thedeductible costs paid or incurred on orafter January 1, 1998, of operating an au-tomobile for business, charitable, medical,or moving expense purposes. This rev-enue procedure also provides rules underwhich the amount of ordinary and neces-sary expenses of local travel or transporta-tion away from home that are paid or in-curred by an employee will be deemedsubstantiated under § 1.274–5Tof thetemporary Income Tax Regulations whena payor (the employer, its agent, or a thirdparty) provides a mileage allowance undera reimbursement or other expense al-lowance arrangement to pay for such ex-penses. Use of a method of substantiationdescribed in this revenue procedure is notmandatory and a taxpayer may use actualallowable expenses if the taxpayer main-tains adequate records or other sufficientevidence for proper substantiation.

SECTION 2. SUMMARY OFSTANDARD MILEAGE RATESBusiness (section 5 below) 32.5 cents per mile

Charitable (section 7 below) 14 cents per mile

Medical and Moving(section 7 below) 10 cents per mile

SECTION 3. BACKGROUND ANDCHANGES

.01 Section 162(a) of the Internal Rev-enue Code allows a deduction for all theordinary and necessary expenses paid orincurred during the taxable year in carry-ing on any trade or business. Under thatprovision, an employee or self-employedindividual may deduct the cost of operat-ing an automobile to the extent that it isused in a trade or business. However,under § 262, no portion of the cost of op-erating an automobile that is attributableto personal use is deductible.

.02 Section 274(d) provides, in part,that no deduction shall be allowed under § 162 with respect to any listed property(as defined in § 280F(d)(4) to include pas-senger automobiles and any other propertyused as a means of transportation) unlessthe taxpayer complies with certain sub-stantiation requirements. The section fur-ther provides that regulations mayprescribe that some or all of the substanti-ation requirements do not apply to an ex-pense that does not exceed an amount pre-scribed by such regulations.

.03 Section 1.274(d)–1, in part, grantsthe Commissioner the authority to pre-scribe rules relating to mileage allowancesfor ordinary and necessary expenses oflocal travel and transportation away fromhome. Pursuant to this grant of authority,the Commissioner may prescribe rulesunder which such allowances, if in accor-dance with reasonable business practice,will be regarded as (1) equivalent to sub-stantiation, by adequate records or othersufficient evidence, of the amount of suchtravel and transportation expenses for pur-poses of § 1.274–5T(c), and (2) satisfyingthe requirements of an adequate account-ing to the employer of the amount of suchexpenses for purposes of § 1.274–5T(f).

.04 Section 62(a)(2)(A) allows an em-ployee, in determining adjusted gross in-come, a deduction for the expenses al-lowed by Part VI (§ 161 and following),subchapter B, chapter 1 of the Code, paidor incurred by the employee in connectionwith the performance of services as an em-ployee under a reimbursement or other ex-pense allowance arrangement with a payor.

.05 Section 62(c) provides that anarrangement 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 thearrangement to the payor, or

(2) provides the employee with theright to retain any amount in excess of thesubstantiated expenses covered under thearrangement. Section 62(c) further pro-vides that the substantiation requirementsdescribed therein shall not apply to anyexpense to the extent that, under the grantof regulatory authority prescribed in §274(d), the Commissioner has providedthat substantiation is not required for suchexpense.

.06 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 businessconnection, substantiation, and returningamounts in excess of expenses as speci-fied in the regulations. Section 1.62–2-(e)(2) specifically provides that substanti-ation of certain business expenses inaccordance with rules prescribed underthe authority of § 1.274(d)–1 will betreated as substantiation of the amount ofsuch expenses for purposes of § 1.62-2.Under § 1.62–2-(f)(2), the Commissionermay prescribe rules under which anarrangement providing mileage al-lowances will be treated as satisfying therequirement of returning amounts in ex-cess of expenses, even though thearrangement does not require the em-ployee to return the portion of such an al-lowance that relates to miles of travelsubstantiated and that exceeds theamount of the employee’s expensesdeemed substantiated pursuant to rulesprescribed under § 274(d), provided theallowance is reasonably calculated not toexceed the amount of the employee’s ex-penses or anticipated expenses and theemployee is required to return any por-tion of such an allowance that relates tomiles of travel not substantiated.

.07 Section 1.62–2(h)(2)(i)(B) providesthat if a payor pays a mileage allowanceunder an arrangement that meets the re-quirements of § 1.62–-2(c)(1), the por-tion, if any, of the allowance that relatesto miles of travel substantiated in accor-dance with § 1.62–2(e), that exceeds theamount of the employee’s expensesdeemed substantiated for such travel pur-suant to rules prescribed under §§ 274(d)and 1.274(d)–1, and that the employee isnot required to return, is subject to with-

1997–52 I.R.B. 25 December 29, 1997

holding and payment of employmenttaxes. See §§ 31.3121(a)–3, 31.3231(e)–1(a)(5), 31.3306(b)–2, and 31.3401-(a)–4.Because the employee is not required toreturn this excess portion, the reasonableperiod of time provisions of § 1.62–2(g)(relating to the return of excess amounts)do not apply to this excess portion.

.08 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 ofemployment taxes on mileage al-lowances.

.09 Significant changes to this revenueprocedure include:

(1) the increase in the charitable stan-dard mileage rate (sections 2 and 7.01);

(2) the deletion of the rural mail carrierspecial mileage rate (in sections 2 and 6 ofRev. Proc. 96–63) and the addition of sec-tion 5.06(4) because of amendments madeto § 162(o) by § 1203 of the Taxpayer Re-lief Act of 1997, Pub. L. No. 105– 34, 111Stat. 788 (August 5, 1997); and

(3) the extension of the rules for usingthe business standard mileage rate or afixed and variable rate (FAVR) allowanceto apply to leased automobiles (sections4, 5, 8, and 9).

SECTION 4. DEFINITIONS.01 Standard mileage rate. The term

“standard mileage rate” means the ap-plicable amount provided by the Servicefor optional use by employees or self-employed individuals in computing thedeductible costs of operating automo-biles (including vans, pickups, or paneltrucks) owned or leased for business pur-poses, or by taxpayers in computing thedeductible costs of operating automo-biles for charitable, medical, or movingexpense purposes.

.02 Transportation expenses. The term“transportation expenses” means the ex-penses of operating an automobile forlocal travel or transportation away fromhome.

.03 Mileage allowance. The term“mileage allowance” means a paymentunder a reimbursement or other expenseallowance arrangement that meets the re-quirements specified in § 1.62-2(c)(1) andthat is

(1) paid with respect to the ordinaryand necessary business expenses in-curred, or which the payor reasonably an-

ticipates will be incurred, by an employeefor transportation expenses in connectionwith the performance of services as anemployee of the employer,

(2) reasonably calculated not to exceedthe amount of the expenses or the antici-pated expenses, and

(3) paid at the applicable standardmileage rate, a flat rate or stated schedule,or in accordance with any other Service-specified rate or schedule.

.04 Flat rate or stated schedule. Amileage allowance is paid at a flat rate orstated schedule if it is provided on a uni-form and objective basis with respect tothe expenses described in section 4.03 ofthis revenue procedure. Such allowancemay be paid periodically at a fixed rate, ata cents-per-mile rate, at a variable ratebased on a stated schedule, at a rate thatcombines any of these rates, or on anyother basis that is consistently applied andin accordance with reasonable businesspractice. Thus, for example, a periodicpayment at a fixed rate to cover the fixedcosts (including depreciation (or leasepayments), insurance, registration and li-cense fees, and personal property taxes)of driving an automobile in connectionwith the performance of services as anemployee of the employer, coupled with aperiodic payment at a cents-per-mile rateto cover the operating costs (includinggasoline and all taxes thereon, oil, tires,and routine maintenance and repairs) ofusing an automobile for such purposes, isan allowance paid at a flat rate or statedschedule. Likewise, a periodic paymentat a variable rate based on a stated sched-ule for different locales to cover the costsof driving an automobile in connectionwith the performance of services as anemployee is an allowance paid at a flatrate or stated schedule.

SECTION 5. BUSINESS STAN-DARD MILEAGE RATE

.01 In general. The standard mileagerate for transportation expenses paid orincurred on or after January 1, 1998, is32.5 cents per mile for all miles of use forbusiness purposes. This business stan-dard mileage rate will be adjusted annu-ally (to the extent warranted) by the Service, and any such adjustment will beapplied prospectively.

.02 Use of the business standardmileage rate. A taxpayer may use the

business standard mileage rate with re-spect to an automobile that is eitherowned or leased by the taxpayer. A tax-payer generally may deduct an amountequal to either the business standardmileage rate times the number of businessmiles traveled or the actual costs (bothoperating and fixed) paid or incurred bythe taxpayer that are allocable to travelingthose business miles.

.03 Business standard mileage rate inlieu of operating and fixed costs. A de-duction using the standard mileage ratefor business miles is computed on ayearly basis and is in lieu of all operatingand fixed costs of the automobile alloca-ble to business purposes (except as pro-vided in section 9.06 of this revenue procedure). Such items as depreciation(or lease payments), maintenance and re-pairs, tires, gasoline (including all taxesthereon), oil, insurance, and license andregistration fees are included in operatingand fixed costs for this purpose.

.04 Parking fees, tolls, interest, andtaxes. Parking fees and tolls attributableto use of the automobile for business pur-poses may be deducted as separate items.Likewise, interest relating to the purchaseof the automobile as well as state andlocal taxes (other than those included inthe cost of gasoline) may be deducted asseparate items, but only to the extent thatthe interest or taxes are allowable deduc-tions under § 163 or 164 respectively. Ifthe automobile is operated less than 100percent for business purposes, an alloca-tion is required to determine the businessand nonbusiness portion of the taxes andinterest deduction allowable. However, § 163(h)(2)(A) expressly provides that in-terest is nondeductible personal interestwhen it is paid or accrued on indebtednessproperly allocable to the trade or businessof performing services as an employee.Section 164 also expressly provides thatstate and local taxes that are paid or ac-crued by a taxpayer in connection with anacquisition or disposition of property willbe treated as part of the cost of the ac-quired property or as a reduction in theamount realized on the disposition of suchproperty.

.05 Depreciation. For owned automo-biles placed in service for business pur-poses, and for which the business stan-dard mileage rate has been used for anyyear, depreciation will be considered to

December 29, 1997 26 1997–52 I.R.B.

have been allowed at the rate of 12 cents amile for 1994, 1995, 1996, 1997, and1998, for those years in which the busi-ness standard mileage rate was used. Ifactual costs were used for one or more ofthose years, the rates above will not applyto any year in which such costs wereused. The depreciation described abovewill reduce the basis of the automobile(but not below zero) in determining ad-justed basis as required by § 1016.

.06 Limitations.(1) The business standard mileage rate

may not be used to compute the de-ductible expenses of (a) automobiles usedfor hire, such as taxicabs, or (b) two ormore automobiles used simultaneously(such as in fleet operations).

(2) The business standard mileage ratemay not be used to compute the de-ductible businsess expenses of an auto-mobile leased by a taxpayer unless thetaxpayer uses either the business standardmileage rate or a FAVR allowance (asprovided in section 8 of this revenue pro-cedure) to compute the deductible busi-ness expenses of the automobile for theentire lease period (including renewals).For a lease commencing on or before De-cember 31, 1997, the “entire lease period”means the portion of the lease period (in-cluding renewals) remaining after thatdate.

(3) The business standard mileage ratemay not be used to compute the de-ductible expenses of an automobile forwhich the taxpayer has (a) claimed depre-ciation using a method other than straight-line for its estimated useful life, (b)claimed a § 179 deduction, or (c) used theAccelerated Cost Recovery System(ACRS) under former § 168 or the Modi-fied Accelerated Cost Recovery System(MACRS) under current § 168. By usingthe business standard mileage rate, thetaxpayer has elected to exclude the auto-mobile (if owned) from MACRS pursuantto § 168(f)(1). If, after using the businessstandard mileage rate, the taxpayer usesactual costs, the taxpayer must usestraight-line depreciation for the automo-bile’s remaining estimated useful life(subject to the applicable depreciation de-duction limitations under § 280F).

(4) The business standard mileage rateand this revenue procedure may not beused to compute the amount of the de-ductible automobile expenses of an em-

ployee of the United States Postal Serviceincurred in performing services involvingthe collection and delivery of mail on arural route if the employee receives quali-fied reimbursements (as defined in § 162(o)) for such expenses. See § 162(o), as amended by § 1203 of theTaxpayer Relief Act of 1997, Pub. L. No.105–34, 111 Stat. 788 (August 5, 1997)for the rules that apply to these qualifiedreimbursements.

SECTION 6. RESERVED

SECTION 7. CHARITABLE,MEDICAL, AND MOVINGSTANDARD MILEAGE RATE

.01 Charitable. Section 170(i), asamended by § 973 of the Taxpayer ReliefAct of 1997, provides a standard mileagerate of 14 cents per mile for purposes ofcomputing the charitable deduction foruse of an automobile in connection withrendering gratuitous services to a charita-ble organization under § 170, for taxableyears beginning after December 31,1997.

.02 Medical and moving. The standardmileage rate is 10 cents per mile for use ofan automobile (a) to obtain medical caredescribed in § 213, or (b) as part of amove for which the expenses are de-ductible under § 217. The standardmileage rates for medical and movingtransportation expenses will be adjustedannually (to the extent warranted) by theService, and any such adjustment will beapplied prospectively.

.03 Charitable, medical, or moving ex-pense standard mileage rate in lieu of op-erating expenses. A deduction computedusing the applicable standard mileage ratefor charitable, medical, or moving ex-pense miles is in lieu of all operating ex-penses (including gasoline and oil) of theautomobile allocable to such purposes.Costs for such items as depreciation (orlease payments), maintenance and repairs,tires, insurance, and license and registra-tion fees are not deductible, and are notincluded in such standard mileage rates.

.04 Parking fees, tolls, interest, andtaxes. Parking fees and tolls attributableto the use of the automobile for charita-ble, medical, or moving expense purposesmay be deducted as separate items. Like-wise, interest relating to the purchase ofthe automobile as well as state and local

taxes (other than those included in thecost of gasoline) may be deducted as sep-arate items, but only to the extent that theinterest and taxes are allowable deduc-tions under § 163 or 164, respectively.

SECTION 8. FIXED ANDVARIABLE RATE ALLOWANCE

.01 In general.(1) The ordinary and necessary ex-

penses paid or incurred by an employee indriving an automobile owned or leased bythe employee in connection with the per-formance of services as an employee ofthe employer will be deemed substanti-ated (in an amount determined under sec-tion 9 of this revenue procedure) when apayor reimburses such expenses with amileage allowance using a flat rate orstated schedule that combines periodicfixed and variable rate payments thatmeet all the requirements of section 8 ofthis revenue procedure (a FAVR al-lowance).

(2) The amount of a FAVR allowancemust be based on data that (a) is derivedfrom the base locality, (b) reflects retailprices paid by consumers, and (c) is rea-sonable and statistically defensible in ap-proximating the actual expenses employ-ees receiving the allowance would incuras owners of the standard automobile.

.02 Definitions.(1) FAVR allowance. A FAVR al-

lowance includes periodic fixed paymentsand periodic variable payments. A payormay maintain more than one FAVR al-lowance. A FAVR allowance that uses thesame payor, standard automobile (or anautomobile of the same make and modelthat is comparably equipped), retentionperiod, and business use percentage isconsidered one FAVR allowance, eventhough other features of the allowancemay vary. A FAVR allowance also in-cludes any optional high mileage pay-ments; however, such optional highmileage payments are included in the em-ployee’s gross income, are reported aswages or other compensation on the em-ployee’s Form W–2, and are subject towithholding and payment of employmenttaxes when paid. See section 9.05 of thisrevenue procedure. An optional highmileage payment covers the additionaldepreciation for a standard automobile at-tributable to business miles driven andsubstantiated by the employee for a calen-

1997–52 I.R.B. 27 December 29, 1997

dar year in excess of the annual businessmileage for that year. If an employee iscovered by the FAVR allowance for lessthan the entire calendar year, the annualbusiness mileage may be prorated on amonthly basis for purposes of the preced-ing sentence.

(2) Periodic fixed payment. A periodicfixed payment covers the projected fixedcosts (including depreciation (or leasepayments), insurance, registration and li-cense fees, and personal property taxes)of driving the standard automobile in con-nection with the performance of servicesas an employee of the employer in a baselocality, and must be paid at least quar-terly. A periodic fixed payment may becomputed by (a) dividing the total pro-jected fixed costs of the standard automo-bile for all years of the retention period,determined at the beginning of the reten-tion period, by the number of periodicfixed payments in the retention period,and (b) multiplying the resulting amountby the business use percentage.

(3) Periodic variable payment. A peri-odic variable payment covers the pro-jected operating costs (including gasolineand all taxes thereon, oil, tires, and rou-tine maintenance and repairs) of driving astandard automobile in connection withthe performance of services as an em-ployee of the employer in a base locality,and must be paid at least quarterly. Therate of a periodic variable payment for acomputation period may be computed bydividing the total projected operatingcosts for the standard automobile for thecomputation period, determined at the be-ginning of the computation period, by thecomputation period mileage. A computa-tion period can be any period of a year orless. Computation period mileage is thetotal mileage (business and personal) apayor reasonably projects a standard auto-mobile will be driven during a computa-tion period and equals the retentionmileage divided by the number of compu-tation periods in the retention period. Foreach business mile substantiated by theemployee for the computation period, theperiodic variable payment must be paid ata rate that does not exceed the rate for thatcomputation period.

(4) Base locality. A base locality is theparticular geographic locality or region ofthe United States in which the costs ofdriving an automobile in connection with

the performance of services as an em-ployee of the employer are generally paidor incurred by the employee. Thus, forpurposes of determining the amount offixed costs, the base locality is generallythe geographic locality or region in whichthe employee resides. For purposes of de-termining the amount of operating costs,the base locality is generally the geo-graphic locality or region in which theemployee drives the automobile in con-nection with the performance of servicesas an employee of the employer.

(5) Standard automobile. A standardautomobile is the automobile selected bythe payor on which a specific FAVR al-lowance is based.

(6) Standard automobile cost. Thestandard automobile cost for a calendaryear may not exceed 95 percent of thesum of (a) the retail dealer invoice cost ofthe standard automobile in the base local-ity, and (b) state and local sales or usetaxes applicable on the purchase of suchan automobile. Further, the standard au-tomobile cost may not exceed $27,100.

(7) Annual mileage. Annual mileage isthe total mileage (business and personal)a payor reasonably projects a standard au-tomobile will be driven during a calendaryear. Annual mileage equals the annualbusiness mileage divided by the businessuse percentage.

(8) Annual business mileage. Annualbusiness mileage is the mileage a payorreasonably projects a standard automobilewill be driven by an employee in connec-tion with the performance of services asan employee of the employer during thecalendar year, but may not be less than6,250 miles for a calendar year. Annualbusiness mileage equals the annualmileage multiplied by the business usepercentage.

(9) Business use percentage. A busi-ness use percentage is determined by di-viding the annual business mileage by theannual mileage. The business use per-centage may not exceed 75 percent. Inlieu of demonstrating the reasonablenessof the business use percentage based onrecords of total mileage and businessmileage driven by the employees annu-ally, a payor may use a business use per-centage that is less than or equal to thefollowing percentages for a FAVR al-lowance that is paid for the following an-nual business mileage:

Annual business Business use mileage percentage

6,250 or more butless than 10,000 45 percent



20,000 or more 75 percent

(10) Retention period. A retention pe-riod is the period in calendar years se-lected by the payor during which thepayor expects an employee to drive astandard automobile in connection withthe performance of services as an em-ployee of the employer before the auto-mobile is replaced. Such period may notbe less than two calendar years.

(11) Retention mileage. Retentionmileage is the annual mileage multipliedby the number of calendar years in the re-tention period.

(12) Residual value. The residual valueof a standard automobile is the projectedamount for which it could be sold at theend of the retention period after being dri-ven the retention mileage. The Servicewill accept the following safe harborresidual values for a standard automobilecomputed as a percentage of the standardautomobile cost:

Retention period Residual value

2-year 70 percent

3-year 60 percent

4-year 50 percent

.03 FAVR allowance in lieu of operat-ing and fixed costs.

(1) A reimbursement computed using aFAVR allowance is in lieu of the em-ployee’s deduction of all the operatingand fixed costs paid or incurred by an em-ployee in driving the automobile in con-nection with the performance of servicesas an employee of the employer, except asprovided in section 9.06 of this revenueprocedure. Such items as depreciation (orlease payments), maintenance and repairs,tires, gasoline (including all taxesthereon), oil, insurance, license and regis-tration fees, and personal property taxesare included in operating and fixed costsfor this purpose.

(2) Parking fees and tolls attributable toan employee driving the standard automo-

December 29, 1997 28 1997–52 I.R.B.

bile in connection with the performanceof services as an employee of the em-ployer are not included in fixed and oper-ating costs and may be deducted as sepa-rate items. Similarly, interest relating tothe purchase of the standard automobilemay be deducted as a separate item, butonly to the extent that the interest is an al-lowable deduction under § 163.

.04 Depreciation.(1) A FAVR allowance may not be paid

with respect to an automobile for whichthe employee has (a) claimed depreciationusing a method other than straight-line forits estimated useful life, (b) claimed a§ 179 deduction, or (c) used the Acceler-ated Cost Recovery System (ACRS)under former § 168 or the Modified Accelerated Cost Recovery System(MACRS) under current § 168. If an em-ployee uses actual costs for an owned au-tomobile that has been covered by aFAVR allowance, the employee must usestraight-line depreciation for the automo-bile’s remaining estimated useful life(subject to the applicable depreciation de-duction limitations under § 280F).

(2) The total amount of the depreciationcomponent for the retention period takeninto account in computing the periodicfixed payments for that retention periodmay not exceed the excess of the standardautomobile cost over the residual value ofthe standard automobile. In addition, thetotal amount of such depreciation compo-nent may not exceed the sum of the annual§ 280F limitations on depreciation (in ef-fect at the beginning of the retention pe-riod) that apply to the standard automobileduring the retention period.

(3) The depreciation included in eachperiodic fixed payment portion of a FAVRallowance paid with respect to an automo-bile will reduce the basis of the automo-bile (but not below zero) in determiningadjusted basis as required by § 1016. Seesection 8.07(2) of this revenue procedurefor the requirement that the employer re-port the depreciation component of a peri-odic fixed payment to the employee.

.05 FAVR allowance limitations.(1) A FAVR allowance may be paid

only to an employee who substantiates tothe payor for a calendar year at least5,000 miles driven in connection with theperformance of services as an employeeof the employer or, if greater, 80 percentof the annual business mileage of that

FAVR allowance. If the employee is cov-ered by the FAVR allowance for less thanthe entire calendar year, these limits maybe prorated on a monthly basis.

(2) A FAVR allowance may not be paidto a control employee (as defined in § 1.61–21(f)(5) and (6), excluding the$100,000 limitation in paragraph(f)(5)(iii)).

(3) At no time during a calendar yearmay a majority of the employees coveredby a FAVR allowance be managementemployees.

(4) At all times during a calendar yearat least 10 employees of an employermust be covered by one or more FAVR al-lowances.

(5) A FAVR allowance may be paidonly with respect to an automobile (a)owned or leased by the employee receiv-ing the payment, (b) the cost of which,when new, is at least 90 percent of thestandard automobile cost taken into ac-count for purposes of determining theFAVR allowance for the first calendaryear the employee receives the allowancewith respect to that automobile, and (c)the model year of which does not differfrom the current calendar year by morethan the number of years in the retentionperiod.

(6) A FAVR allowance may not be paidwith respect to an automobile leased byan employee for which the employee hasused actual expenses to compute the de-ductible business expenses of the automo-bile for any year during the entire leaseperiod. For a lease commencing on or be-fore December 31, 1997, the “entire leaseperiod” means the portion of the lease pe-riod (including renewals) remaining afterthat date.

(7) The insurance cost component of aFAVR allowance must be based on therates charged in the base locality for in-surance coverage on the standard automo-bile during the current calendar year with-out taking into account suchrate-increasing factors as poor drivingrecords or young drivers.

(8) A FAVR allowance may be paidonly to an employee whose insurancecoverage limits on the automobile withrespect to which the FAVR allowance ispaid are at least equal to the insurancecoverage limits used to compute the peri-odic fixed payment under that FAVR allowance.

.06 Employee reporting. Within 30days after an employee’s automobile isinitially covered by a FAVR allowance, oris again covered by a FAVR allowance ifsuch coverage has lapsed, the employeeby written declaration must provide thepayor with the following information: (a)the make, model, and year of the em-ployee’s automobile, (b) written proof ofthe insurance coverage limits on the auto-mobile, (c) the odometer reading of theautomobile, (d) if owned, the purchaseprice of the automobile or, if leased, theprice at which the automobile is ordinar-ily sold by retailers (the gross capitalizedcost of the automobile), and (e) if owned,whether the employee has claimed depre-ciation with respect to the automobileusing any of the depreciation methodsprohibited by section 8.04(1) of this rev-enue procedure or, if leased, whether theemployee has computed deductible busi-ness expenses with respect to the automo-bile using actual expenses. The informa-tion described in (a), (b), and (c) of thepreceding sentence also must be suppliedby the employee to the payor within 30days after the beginning of each calendaryear that the employee’s automobile iscovered by a FAVR allowance.

.07 Payor recordkeeping and reporting.(1) The payor or its agent must main-

tain written records setting forth (a) thestatistical data and projections on whichthe FAVR allowance payments are based,and (b) the information provided by theemployees pursuant to section 8.06 of thisrevenue procedure.

(2) Within 30 days of the end of eachcalendar year, the employer must provideeach employee covered by a FAVR al-lowance during that year with a statementthat, for automobile owners, lists theamount of depreciation included in eachperiodic fixed payment portion of theFAVR allowance paid during that calen-dar year and explains that by receiving aFAVR allowance the employee haselected to exclude the automobile fromMACRS pursuant to § 168(f)(1). For au-tomobile lessees, the statement must ex-plain that by receiving the FAVR al-lowance the employee may not computethe deductible business expenses of theautomobile using actual expenses for theentire lease period (including renewals).For a lease commencing on or before De-cember 31, 1997, the “entire lease pe-

1997–52 I.R.B. 29 December 29, 1997

riod” means the portion of the lease pe-riod (including renewals) remaining afterthat date.

.08 Failure to meet section 8 require-ments. If an employee receives a mileageallowance that fails to meet one or moreof the requirements of section 8 of thisrevenue procedure, the employee may notbe treated as covered by any FAVR al-lowance of the payor during the period ofsuch failure. Nevertheless, the expensesto which that mileage allowance relatesmay be deemed substantiated using themethod described in sections 5, 9.01(1),and 9.02 of this revenue procedure to theextent the requirements of those sectionsare met.

SECTION 9. APPLICATION

.01 If a payor pays a mileage allowancein lieu of reimbursing actual transporta-tion expenses incurred or to be incurredby an employee, the amount of the ex-penses that is deemed substantiated to thepayor is either:

(1) for any mileage allowance otherthan a FAVR allowance, the lesser of theamount paid under the mileage allowanceor the applicable standard mileage rate insection 5.01 of this revenue proceduremultiplied by the number of businessmiles substantiated by the employee; or

(2) for a FAVR allowance, the amountpaid under the FAVR allowance less thesum of (a) any periodic variable rate pay-ment that relates to miles in excess of thebusiness miles substantiated by the em-ployee and that the employee fails to re-turn to the payor although required to doso, (b) any portion of a periodic fixedpayment that relates to a period duringwhich the employee is treated as not cov-ered by the FAVR allowance and that theemployee fails to return to the payor al-though required to do so, and (c) any op-tional high mileage payments.

.02 If the amount of transportation ex-penses is deemed substantiated under therules provided in section 9.01 of this rev-enue procedure, and the employee actu-ally substantiates to the payor the ele-ments of time, place (or use), andbusiness purpose of the transportation ex-penses in accordance with paragraphs(b)(2) (travel away from home), (b)(6)(listed property, which includes passengerautomobiles and any other property used

as a means of transportation), and (c) of §1.274–5T, the employee is deemed to sat-isfy the adequate accounting requirementsof § 1.274–5T(f), as well as the require-ment to substantiate by adequate recordsor other sufficient evidence for purposesof § 1.274–5T(c). See § 1.62–2(e)(1) forthe rule that an arrangement must requirebusiness expenses to be substantiated tothe payor within a reasonable period oftime.

.03 An arrangement providing mileageallowances will be treated as satisfyingthe requirement of § 1.62–2(f)(2) with re-spect to returning amounts in excess ofexpenses as follows:

(1) For a mileage allowance other thana FAVR allowance, the requirement to re-turn excess amounts will be treated assatisfied if the employee is required to re-turn within a reasonable period of time(as defined in § 1.62–2(g)) any portion ofsuch an allowance that relates to miles oftravel not substantiated by the employee,even though the arrangement does not re-quire the employee to return the portionof such an allowance that relates to themiles of travel substantiated and that ex-ceeds the amount of the employee’s ex-penses deemed substantiated. For exam-ple, assume a payor provides anemployee an advance mileage allowanceof $70 based on an anticipated 200 busi-ness miles at 35 cents per mile (at a timewhen the applicable business standardmileage rate is 32.5 cents per mile), andthe employee substantiates 120 businessmiles. The requirement to return excessamounts will be treated as satisfied if theemployee is required to return the portionof the allowance that relates to the 80 un-substantiated business miles ($28) eventhough the employee is not required toreturn the portion of the allowance ($3)that exceeds the amount of the em-ployee’s expenses deemed substantiatedunder section 9.01 of this revenue proce-dure ($39) for the 120 substantiated busi-ness miles. However, the $3 excess por-tion of the allowance is treated as paidunder a nonaccountable plan as discussedin section 9.05.

(2) For a FAVR allowance, the require-ment to return excess amounts will betreated as satisfied if the employee is re-quired to return within a reasonable pe-riod of time (as defined in § 1.62–2(g)),(a) the portion (if any) of the periodic

variable payment received that relates tomiles in excess of the business miles sub-stantiated by the employee, and (b) theportion (if any) of a periodic fixed pay-ment that relates to a period during whichthe employee was not covered by theFAVR allowance.

.04 An employee is not required to in-clude in gross income the portion of amileage allowance received from a payorthat is less than or equal to the amountdeemed substantiated under section 9.01of this revenue procedure, provided theemployee substantiates in accordancewith section 9.02. See § 1.274–5T(f)-(2)(i). In addition, such portion of the al-lowance is treated as paid under an ac-countable plan, is not reported as wagesor other compensation on the employee’sForm W-2, and is exempt from the with-holding and payment of employmenttaxes. See §§ 1.62–2(c)(2) and (c)(4).

.05 An employee is required to includein gross income only the portion of amileage allowance received from a payorthat exceeds the amount deemed substan-tiated under section 9.01 of this revenueprocedure, provided the employee sub-stantiates in accordance with section 9.02of this revenue procedure. See § 1.274–5T(f)(2)(ii). In addition, the ex-cess portion of the allowance is treated aspaid under a nonaccountable plan, is re-ported as wages or other compensation onthe employee’s Form W-2, and is subjectto withholding and payment of employ-ment taxes. See §§ 1.62–2(c)(3)(ii),(c)(5), and (h)(2)(i)(B).

.06 (1) Except as otherwise provided in

section 9.06(2) of this revenue procedurewith respect to leased automobiles, if theamount of the expenses deemed substanti-ated under the rules provided in section9.01 of this revenue procedure is less thanthe amount of the employee’s businesstransportation expenses, the employeemay claim an itemized deduction for theamount by which the business transporta-tion expenses exceed the amount that isdeemed substantiated, provided the em-ployee substantiates all the business trans-portation expenses, includes on Form2106, Employee Business Expenses, thedeemed substantiated portion of themileage allowance received from thepayor, and includes in gross income theportion (if any) of the mileage allowance

December 29, 1997 30 1997–52 I.R.B.

received from the payor that exceeds the amount deemed substantiated. See § 1.274–5T(f)(2)(iii). However, for pur-poses of claiming this itemized deduction,substantiation of the amount of the ex-penses is not required if the employee isclaiming a deduction that is equal to orless than the applicable standard mileagerate multiplied by the number of businessmiles substantiated by the employeeminus the amount deemed substantiatedunder section 9.01 of this revenue proce-dure. The itemized deduction is subjectto the 2-percent floor on miscellaneousitemized deductions provided in § 67.

(2) An employee whose business trans-portation expenses with respect to aleased automobile are deemed substanti-ated under section 9.01(1) of this revenueprocedure (relating to an allowance otherthan a FAVR allowance) may not claim adeduction based on actual expenses un-less the employee does so consistently be-ginning with the first business use of theautomobile after December 31, 1997.However, an employee whose businesstransportation expenses with respect to aleased automobile are deemed substanti-ated under section 9.01(2) of this revenueprocedure (relating to a FAVR allowance)may not claim a deduction based on ac-tual expenses.

.07 An employee may deduct anamount computed pursuant to section5.01 of this revenue procedure only as anitemized deduction. This itemized deduc-tion is subject to the 2-percent floor onmiscellaneous itemized deductions pro-vided in § 67.

.08 A self-employed individual maydeduct an amount computed pursuant tosection 5.01 of this revenue procedure indetermining adjusted gross income under§ 62(a)(1).

.09 If a payor’s reimbursement or otherexpense allowance arrangement evi-dences a pattern of abuse of the rules of § 62(c) and the regulations thereunder, allpayments under the arrangement will betreated as made under a nonaccountableplan. Thus, such payments are includedin the employee’s gross income, are re-ported as wages or other compensation onthe employee’s Form W–2, and are sub-ject to withholding and payment of em-ployment taxes. See §§ 1.62–2(c)(3),(c)(5), and (h)(2).

SECTION 10. WITHHOLDINGAND PAYMENT OFEMPLOYMENT TAXES.

.01 The portion of a mileage allowance(other than a FAVR allowance), if any,that relates to the miles of business travelsubstantiated and that exceeds the amountdeemed substantiated for those milesunder section 9.01(1) of this revenue pro-cedure is subject to withholding and payment of employment taxes. See § 1.62–2(h)(2)(i)(B).

(1) In the case of a mileage allowancepaid as a reimbursement, the excess de-scribed in section 10.01 of this revenueprocedure is subject to withholding andpayment of employment taxes in the pay-roll period in which the payor reimbursesthe expenses for the business miles sub-stantiated. See § 1.62–2(h)(2)(i)(B)(2).

(2) In the case of a mileage allowancepaid as an advance, the excess describedin section 10.01 of this revenue proce-dure is subject to withholding and pay-ment of employment taxes no later thanthe first payroll period following the pay-roll period in which the business mileswith respect to which the advance waspaid are substantiated. See §1.62–2(h)(2)-(i)(B)(3). If some or all ofthe business miles with respect to whichthe advance was paid are not substanti-ated within a reasonable period of timeand the employee does not return the por-tion of the allowance that relates to thosemiles within a reasonable period of time,the portion of the allowance that relatesto those miles is subject to withholdingand payment of employment taxes nolater than the first payroll period follow-ing the end of the reasonable period. See § 1.62–2(h)(2)(i)(A).

(3) In the case of a mileage allowancethat is not computed on the basis of afixed amount per mile of travel (e.g., amileage allowance that combines peri-odic fixed and variable rate payments,but that does not satisfy the requirementsof section 8 of this revenue procedure),the payor must compute periodically (noless frequently than quarterly) theamount, if any, that exceeds the amountdeemed substantiated under section9.01(1) of this revenue procedure bycomparing the total mileage allowancepaid for the period to the applicable stan-dard mileage rate in section 5.01 of this

revenue procedure multiplied by thenumber of business miles substantiatedby the employee for the period. Any ex-cess is subject to withholding and pay-ment of employment taxes no later thanthe first payroll period following the pay-roll period in which the excess is com-puted. See § 1.62–2(h)(2)(i)(B)(4).

(4) For example, assume an employerpays its employees a mileage allowanceat a rate of 35 cents per mile (when thebusiness standard mileage rate is 32.5cents per mile). The employer does notrequire the return of the portion of the al-lowance (2.5 cents) that exceeds the busi-ness standard mileage rate for the busi-ness miles substantiated. In June, theemployer advances an employee $175 for500 miles to be traveled during themonth. In July, the employee substanti-ates to the employer 400 business milestraveled in June and returns $35 to theemployer for the 100 business miles nottraveled. The amount deemed substanti-ated for the 400 miles traveled is $130and the employee is not required to returnthe remaining $10. No later than the firstpayroll period following the payroll pe-riod in which the 400 business miles trav-eled are substantiated, the employer mustwithhold and pay employment taxes on$10.

.02 The portion of a FAVR allowance,if any, that exceeds the amount deemedsubstantiated for those miles under sec-tion 9.01(2) of this revenue procedure issubject to withholding and payment ofemployment taxes. See § 1.62–2(h)-(2)(i)(B).

(1) Any periodic variable rate paymentthat relates to miles in excess of the busi-ness miles substantiated by the employeeand that the employee fails to returnwithin a reasonable period, or any por-tion of a periodic fixed payment that re-lates to a period during which the em-ployee is treated as not covered by theFAVR allowance and that the employeefails to return within a reasonable period,is subject to withholding and payment ofemployment taxes no later than the firstpayroll period following the end of thereasonable period. See § 1.62–2(h)-(2)(i)(A).

(2) Any optional high mileage paymentis subject to withholding and payment ofemployment taxes when paid.

1997–52 I.R.B. 31 December 29, 1997

SECTION 11. EFFECT ONOTHER DOCUMENTS

Rev. Proc. 96-63, 1996–2 C.B. 420, ishereby superseded for mileage al-lowances paid to an employee on or afterJanuary 1, 1998, with respect to trans-portation expenses paid or incurred on orafter January 1, 1998, and, for purposes ofcomputing the amount allowable as a de-duction, for transportation expenses paidor incurred on or after January 1, 1998.


The principal author of this revenueprocedure is Edwin B. Cleverdon of theOffice of Assistant Chief Counsel (In-come Tax and Accounting). For furtherinformation regarding this revenue proce-dure, contact Mr. Cleverdon on (202)622-4920 (not a toll-free call).

26 CFR 601.105: Examination of returns andclaims 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, 1.274–5T, 1.274(d)–1)

Rev. Proc. 97–59

SECTION 1. PURPOSE This revenue procedure updates Rev.

Proc. 96-64, 1996–2 C.B. 427, by provid-ing rules under which the amount of ordi-nary and necessary business expenses ofan employee for lodging, meal, and inci-dental expenses or for meal and inciden-tal expenses incurred while travelingaway from home will be deemed substan-tiated under § 1.274–5Tof the temporaryIncome Tax Regulations when a payor(the employer, its agent, or a third party)provides a per diem allowance under areimbursement or other expense al-lowance arrangement to pay for such ex-penses. This revenue procedure also pro-vides an optional method for employeesand self-employed individuals to use incomputing the deductible costs of busi-ness meal and incidental expenses paid orincurred while traveling away fromhome. Use of a method described in thisrevenue procedure is not mandatory anda taxpayer may use actual allowable ex-penses if the taxpayer maintains adequaterecords or other sufficient evidence forproper substantiation. This revenue pro-cedure does not provide rules under

which the amount of an employee’s lodg-ing expenses will be deemed substanti-ated when a payor provides an allowanceto pay for those expenses but not mealand incidental expenses.


.01 Section 162(a) of the Internal Rev-enue Code allows a deduction for all theordinary and necessary expenses paid orincurred during the taxable year in carry-ing on any trade or business. Under thatprovision, an employee or self-employedindividual may deduct expenses paid or in-curred while traveling away from home inpursuit of a trade or business. However,under § 262, no portion of such travel ex-penses that is attributable to personal, liv-ing, or family expenses is deductible.

.02 Section 274(n) generally limits theamount allowable as a deduction under § 162 for any expense for food, beverages,or entertainment to 50 percent of theamount of the expense that otherwisewould be allowable as a deduction. In thecase of any expenses for food or beveragesconsumed while away from home (withinthe meaning of § 162(a)(2)) by an individ-ual during, or incident to, the period ofduty subject to the hours of services limita-tions of the Department of Transportation,§ 274(n)(3), as added by § 969 of the Tax-payer Relief Act of 1997, Pub. L. No.105–34, 111 Stat. 788 (August 5, 1997),gradually increases the deductible percent-age to 80 percent for taxable years begin-ning in 2008. For taxable years beginningin 1998, the deductible percentage forthese expenses is 55 percent.

.03 Section 274(d) provides, in part,that no deduction shall be allowed under §162 for any traveling expense (includingmeals and lodging while away fromhome) unless the taxpayer complies withcertain substantiation requirements. Thesection further provides that regulationsmay prescribe that some or all of the sub-stantiation requirements do not apply toan expense that does not exceed anamount prescribed by such regulations.

.04 Section 1.274(d)–1(a) of the regula-tions, in part, grants the Commissionerthe authority to prescribe rules relating toreimbursement arrangements or per diemallowances for ordinary and necessary ex-penses paid or incurred while travelingaway from home. Pursuant to this grant

of authority, the Commissioner may pre-scribe rules under which such arrange-ments or allowances, if in accordancewith reasonable business practice, will beregarded (1) as equivalent to substantia-tion, by adequate records or other suffi -cient evidence, of the amount of suchtravel expenses for purposes of§ 1.274–5T(c), and (2) as satisfying therequirements of an adequate accountingto the employer of the amount of suchtravel expenses for purposes of § 1.274–5T(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, paidor incurred by the employee in connectionwith the performance of services as anemployee under a reimbursement or otherexpense allowance arrangement with apayor.

.06 Section 62(c) provides that anarrangement 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 thearrangement to the payor, or

(2) provides the employee with theright to retain any amount in excess of thesubstantiated expenses covered under thearrangement.

Section 62(c) further provides that thesubstantiation requirements describedtherein shall not apply to any expense tothe extent that, under the grant of regula-tory authority 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 businessconnection, substantiation, and returningamounts in excess of expenses as speci-fied in the regulations. Section1.62–2(e)(2) specifically provides thatsubstantiation of certain business ex-penses in accordance with rules pre-scribed under the authority of § 1.274(d)–1(a) or 1.274–5T(j) will betreated as substantiation of the amount ofsuch expenses for purposes of § 1.62–2.Under § 1.62–2(f)(2), the Commissionermay prescribe rules under which an

December 29, 1997 32 1997–52 I.R.B.

arrangement providing per diem al-lowances will be treated as satisfying therequirement of returning amounts in ex-cess of expenses, even though the arrange-ment does not require the employee to re-turn the portion of such an allowance thatrelates to days of travel substantiated andthat exceeds the amount of the employee’sexpenses deemed substantiated pursuantto rules prescribed under § 274(d), pro-vided the allowance is reasonably calcu-lated not to exceed the amount of the em-ployee’s expenses or anticipated expensesand the employee is required to return anyportion of such an allowance that relates todays 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 al-lowance that relates to days of travel sub-stantiated in accordance with § 1.62–2(e),that exceeds the amount of the employee’sexpenses deemed substantiated for suchtravel pursuant to rules prescribed under § 274(d) and § 1.274(d)–1(a) or § 1.274–5T(j), and that the employee isnot required to return, is subject to with-holding and payment of employmenttaxes. See §§ 31.3121(a)–3, 31.3231(e)–1(a)(5), 31.3306(b)–2, and 31.3401(a)–4.Because the employee is not required toreturn this excess portion, the reasonableperiod of time provisions of § 1.62–2(g)(relating to the return of excess amounts)do not apply to this portion.

.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 ofemployment taxes on per diem al-lowances.

.10 Section 1.274–5T(j) grants theCommissioner the authority to establish amethod under which a taxpayer may electto use a specified amount for meals paidor incurred while traveling away fromhome in lieu of substantiating the actualcost of meals.

.11 Significant changes to this revenueprocedure include:

(1) revisions to the list of high-cost lo-calities and high-low rates for purposes ofthe high-low substantiation method (sec-tion 5);

(2) modification of how to prorate theFederal M&IE rate for partial days oftravel to reflect an amendment to the Fed-

eral Travel Regulations by 61 Fed. Reg.68,158 (1996) (to be codified at 41 C.F.R.§ 301–7.8) (section 6.04); and

(3) modification of the limitation on thededuction of meal expenses to reflect anamendment to § 274(n) (as described insection 2.02 of this revenue procedure)(sections 6.05 and 7).

SECTION 3. DEFINITIONS.01 Per diem allowance. The term “per

diem allowance” means a payment undera reimbursement or other expense al-lowance arrangement that meets the re-quirements specified in § 1.62–2(c)(1)and that is

(1) paid with respect to ordinary andnecessary business expenses incurred, orwhich the payor reasonably anticipateswill be incurred, by an employee for lodg-ing, meal, and incidental expenses or formeal and incidental expenses for travelaway from home in connection with theperformance of services as an employeeof the employer,

(2) reasonably calculated not to exceedthe amount of the expenses or the antici-pated expenses, and

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

.02 Federal per diem rate.(1) General rule. The Federal per diem

rate is equal to the sum of the Federallodging expense rate and the Federal mealand incidental expense (M&IE) rate forthe locality of travel. Each of these ratesfor a particular locality in the continentalUnited States (“CONUS”) is set forth inAppendix A of 41 C.F.R., Chapter 301, asamended. See 41 C.F.R. Part 301–7(1996), as amended, for specific rules re-garding these Federal rates. Each of theserates is established by the Secretary ofDefense for a particular nonforeign local-ity outside the continental United States(“OCONUS”) (including Alaska, Hawaii,Puerto Rico, the Northern Mariana Is-lands, and the possessions of the UnitedStates), and by the Secretary of State for aparticular foreign OCONUS locality.Each of these OCONUS rates is publishedin the Per Diem Supplement to the Stan-dardized Regulations (Government Civil-ians, Foreign Areas). See, e.g., MaximumTravel Per Diem Allowances for Foreign

Areas, PD Supplement 382, issuedMarch 1, 1996.

(2) Locality of travel. The term “local-ity of travel” means the locality where anemployee traveling away from home inconnection with the performance of ser-vices as an employee of the employerstops for sleep or rest.

(3) Incidental expenses. The term “in-cidental expenses” includes, but is notlimited to, expenses for laundry, cleaningand pressing of clothing, and fees and tipsfor services, such as for porters and bag-gage carriers. The term “incidental ex-penses” does not include taxicab fares orthe costs of telegrams 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 ex-penses described in section 3.01 of thisrevenue procedure. Such allowance maybe paid with respect to the number of daysaway from home in connection with theperformance of services as an employeeor on any other basis that is consistentlyapplied and in accordance with reason-able business practice. Thus, for exam-ple, an hourly payment to cover meal andincidental expenses paid to a pilot orflight attendant who is traveling awayfrom home in connection with the perfor-mance of services as an employee is an al-lowance paid at a flat rate or stated sched-ule. Likewise, a payment based on thenumber of miles traveled (e.g., cents permile) to cover meal and incidental ex-penses paid to an over-the-road truck dri-ver who is traveling away from home inconnection with the performance of ser-vices as an employee is an allowance paidat a flat rate or stated schedule.

(2) Limitation. For purposes of thisrevenue procedure, an allowance that iscomputed on a basis similar to that usedin computing the employee’s wages orother compensation (e.g., the number ofhours worked, miles traveled, or piecesproduced) does not meet the businessconnection requirement of § 1.62–2(d), isnot a per diem allowance, and is not paidat a flat rate or stated schedule, unless, asof December 12, 1989, (a) the allowancewas identified by the payor either by mak-ing a separate payment or by specificallyidentifying the amount of the allowance,

1997–52 I.R.B. 33 December 29, 1997

or (b) an allowance computed on that

basis was commonly used in the industry

in which the employee is employed. See

§ 1.62–2(d)(3)(ii).

SECTION 4. PER DIEMSUBSTANTIATION METHOD

.01 Per diem allowance. If a payor

pays a per diem allowance in lieu of reim-

bursing actual expenses for lodging, meal,

and incidental expenses incurred or to be

incurred by an employee for travel away

from home, the amount of the expenses

that is deemed substantiated for each cal-

endar day is equal to the lesser of the per

diem allowance for such day or the

amount computed at the Federal per diem

rate for the locality of travel for such day

(or partial day, see section 6.04 of this

revenue procedure).

.02 Meals only per diem allowance. If a

payor pays a per diem allowance only for

meal and incidental expenses in lieu of re-

imbursing actual expenses for meal and

incidental expenses incurred or to be in-

curred by an employee for travel away

from home, the amount of the expenses

that is deemed substantiated for each cal-

endar day is equal to the lesser of the per

diem allowance for such day or the

amount computed at the Federal M&IE

rate for the locality of travel for such day

(or partial day, see section 6.04 of this rev-

enue procedure). A per diem allowance is

treated as paid only for meal and inciden-

tal expenses if (1) the payor pays the em-

ployee for actual expenses for lodging

based on receipts submitted to the payor,

(2) the payor provides the lodging in kind,

(3) the payor pays the actual expenses for

lodging directly to the provider of the

lodging, (4) the payor does not have a rea-

sonable belief that lodging expenses were

or will be incurred by the employee, or (5)

the allowance is computed on a basis simi-

lar to that used in computing the em-

ployee’s wages or other compensation

(e.g., the number of hours worked, miles

traveled, or pieces produced).

.03 Optional method for meals only de-duction. In lieu of using actual expenses,employees and self-employed individuals,in computing the amount allowable as adeduction for ordinary and necessary mealand incidental expenses paid or incurredfor travel away from home, may use anamount computed at the Federal M&IErate for the locality of travel for each cal-endar day (or partial day, see section 6.04of this revenue procedure) the employeeor self-employed individual is away fromhome. Such amount will be deemed sub-stantiated for purposes of paragraphs(b)(2) (travel away from home) and (c) of§ 1.274–5T, provided the employee orself-employed individual substantiates theelements of time, place, and business pur-pose of the travel expenses in accordancewith those regulations.

.04 Special rules for transportation in-dustry.

(1) In general. This section 4.04 ap-plies to (a) a payor that pays a per diemallowance only for meal and incidentalexpenses for travel away from home asdescribed in section 4.02 of this revenueprocedure to an employee in the trans-portation industry, or (b) an employee orself-employed individual in the trans-portation industry who computes theamount allowable as a deduction for mealand incidental expenses for travel awayfrom home in accordance with section4.03 of this revenue procedure.

(2) Rates. A taxpayer described in sec-tion 4.04(1) of this revenue proceduremay treat $36 as the Federal M&IE ratefor any locality of travel in CONUS,and/or $40 as the Federal M&IE rate forany locality of travel OCONUS. A payorthat uses either (or both) of these specialrates with respect to an employee mustuse the special rate(s) for all amounts sub-ject to section 4.02 of this revenue proce-dure paid to that employee for travel awayfrom home within CONUS and/orOCONUS, as the case may be, during thecalendar year. Similarly, an employee orself-employed individual that uses either(or both) of these special rates must usethe special rate(s) for all amounts com-puted pursuant to section 4.03 of this rev-enue procedure for travel away fromhome within CONUS and/or OCONUS,as the case may be, during the calendaryear.

(3) Periodic rule. A payor described in

section 4.04(1) of this revenue proceduremay compute the amount of the em-ployee’s expenses that is deemed substan-tiated under section 4.02 of this revenueprocedure periodically (not less fre-quently than monthly), rather than daily,by comparing the total per diem al-lowance paid for the period to the sum ofthe amounts computed at the FederalM&IE rate(s) for the localities of travelfor the days (or partial days, see section6.04 of this revenue procedure) the em-ployee is away from home during the pe-riod. For example, assume an employeein the transportation industry travels awayfrom home within CONUS on 17 days(including partial days, see section 6.04 ofthis revenue procedure) during a calendarmonth and receives a per diem allowanceonly for meal and incidental expensesfrom a payor that uses the special ruleunder section 4.04(2) of this revenue pro-cedure. The amount deemed substanti-ated under section 4.02 of this revenueprocedure is equal to the lesser of the totalper diem allowance paid for the month or$612 (17 days at $36 per day).

(4) Transportation industry defined. Forpurposes of this section 4.04 of this rev-enue procedure, an employee or self-em-ployed individual is “in the transportationindustry” only if the employee’s or indi-vidual’s work (a) is of the type that directlyinvolves moving people or goods by air-plane, barge, bus, ship, train, or truck, and(b) regularly requires travel away fromhome which, during any single trip awayfrom home, usually involves travel to lo-calities with differing Federal M&IE rates.For purposes of the preceding sentence, apayor must determine that an employee ora group of employees is “in the transporta-tion industry” by using a method that isconsistently applied and in accordancewith reasonable business practice.

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 fromhome and the payor uses the high-lowsubstantiation method described in thissection 5 for travel within CONUS, theamount of the expenses that is deemedsubstantiated for each calendar day is

December 29, 1997 34 1997–52 I.R.B.

equal to the lesser of the per diem al-lowance for such day or the amount com-puted at the rate set forth in section 5.02of this revenue procedure for the localityof travel for such day (or partial day, seesection 6.04 of this revenue procedure).This high-low substantiation method maybe used in lieu of the per diem substantia-tion method provided in section 4.01 ofthis revenue procedure, but may not beused in lieu of the meals only substantia-

tion method provided in section 4.02 or4.03 of this revenue procedure.

.02 Specific high-low rates. The perdiem rate set forth in this section 5.02 is$180 for travel to any “high-cost locality”specified in section 5.03 of this revenueprocedure, or $113 for travel to any otherlocality within CONUS. Whichever perdiem rate applies, it is applied as if it werethe Federal per diem rate for the localityof travel. For purposes of applying the

high-low substantiation method, the Fed-eral M&IE rate shall be treated as $40 fora high-cost locality and $32 for any otherlocality within CONUS.

.03 High-cost localities. The followinglocalities have a Federal per diem rate of$147 or more for all or part of the calen-dar year, and are high-cost localities forall of the calendar year or the portion ofthe calendar year specified in parenthesisunder the key city name:

Key city County and other defined location

ArizonaGrand Canyon All points in the Grand Canyon National Park and Kaibab National Forest within

Coconino County

CaliforniaLos Angeles Los Angeles, Kern, Orange, and Ventura Counties; Edwards Air Force Base,

Naval Weapons Center and Ordnance Test Station, China Lake

Napa Napa(April 1-October 31)Palo Alto/San Jose Santa ClaraPoint Arena/Gualala Mendocino San Francisco San Francisco

ColoradoAspen PitkinKeystone/Silverthorne SummitTelluride San MiquelVail Eagle(November 1-March 31)

DelawareLewes Sussex(June 1-September 14)

District of Columbia Washington, D.C.; the cities of Alexandria, Falls Church, and Fairfax, and the counties ofWashington, D.C. Arlington, Loudoun, and Fairfax in Virginia; and the counties of Montgomery and Prince

George’s in Maryland

FloridaKey West Monroe(December 15-April 30)Naples CollierDecember 15-April 30)

IllinoisChicago Du Page, Cook, and Lake

IndianaNashville Brown(June 1-October 31)

MaineBar Harbor Hancock(July 1-September 14)

Maryland(For the counties of Montgomery and Prince George’s, see District of Columbia)Baltimore Baltimore and HarfordOcean City Worcester(May 1-September 30)Saint Michaels Talbot(April 1-November 30)

1997–52 I.R.B. 35 December 29, 1997

Key city County and other defined location

Maryland—ContinuedMassachusetts

Boston SuffolkCambridge/Lowell Middlesex Martha’s Vineyard Dukes(June 1-October 31)Nantucket Nantucket(June 1-October 31)

NevadaIncline Village All points in the Northern Lake Tahoe area within Washoe County(June 1-September 30)

New HampshireHanover Grafton and Sullivan(June 1-October 31)

New JerseyOcean City/Cape May Cape May(May 15-September 30)Parsippany/Dover Morris; Picatinny Arsenal

New MexicoSanta Fe Santa Fe(May 1-October 31)

New YorkNew York City The boroughs of Bronx, Brooklyn, Manhattan, Queens, and Staten Island; Nassau and

Suffolk CountiesTarrytown/White Plains Westchester

North CarolinaKill Devil/Duck/ DareOuter Banks(May 1-September 30)

PennsylvaniaPhiladelphia Philadelphia; city of Bala Cynwyd in Montgomery County

Rhode IslandNewport/Block Island Newport and Washington

(May 1-October 14)

South CarolinaHilton Head Beaufort(March 1-September 30)Myrtle Beach Horry; Myrtle Beach Air Force Base

(May 1-September 30)

UtahPark City Summit(December 1-March 31)

Virginia(For the cities of Alexandria, Fairfax, and Falls Church, and the counties of Arlington, Fairfax, and Loudoun, see District of Columbia)

WashingtonFriday Harbor San Juan(June 1-October 31)Seattle King

WyomingJackson Teton(June 1-October 14)

December 29, 1997 36 1997–52 I.R.B.

.04 Changes in high-cost localities.The list of high-cost localities in section5.03 of this revenue procedure differsfrom the list of high-cost localities in sec-tion 5.03 of Rev. Proc. 96-64. The fol-lowing localities have been added to thelist of high-cost localities: Napa, Califor-nia; Lewes, Delaware; Naples, Florida;Baltimore, Maryland; Hanover, NewHampshire; Parsippany/Dover, New Jer-sey; Tarrytown, New York; Kill Devil,North Carolina; Hilton Head, South Car-olina; Myrtle Beach, South Carolina; Fri-day Harbor, Washington; and Seattle,Washington. The portion of the year forwhich the following are high-cost locali-ties has been changed: Aspen, Colorado;Key West, Florida; Saint Michaels, Mary-land; Martha’s Vineyard, Massachusetts;Nantucket, Massachusetts; and InclineVillage, Nevada. The following localitieshave been removed from the list of high-cost localities: Phoenix/Scottsdale, Ari -zona; South Lake Tahoe, California;Yosemite National Park, California;Steamboat Springs, Colorado; Hyannis,Massachusetts; Leland, Michigan; Mack-inac Island, Michigan; Stateline, Nevada;Atlantic City, New Jersey; Sandusky,Ohio; Chester/Radnor, Pennsylvania;Bullfrog, Utah; Virginia Beach, Virginia;Wintergreen, Virginia; and WisconsinDells, Wisconsin.

.05 Specific limitation. A payor thatuses 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. How-ever, with respect to that employee, thepayor may still reimburse actual expensesor use the meals only per diem methoddescribed in section 4.02 of this revenueprocedure for any travel away from home,and may use the per diem substantiationmethod described in section 4.01 of thisrevenue procedure for any OCONUStravel away from home.

SECTION 6. LIMITATIONS ANDSPECIAL RULES

.01 In general. The Federal per diemrate and the Federal M&IE rate describedin section 3.02 of this revenue procedurefor the locality of travel will be applied inthe same manner as applied under theFederal Travel Regulations, 41 C.F.R.Part 301–7 (1996), except as provided in

sections 6.02 through 6.04 of this revenueprocedure.

.02 Federal per diem rate. A receiptfor lodging expenses is not required in de-termining the amount of expenses deemedsubstantiated under section 4.01 or 5.01of this revenue procedure. See section7.01 of this revenue procedure for the re-quirement that the employee substantiatethe time, place, and business purpose ofthe expense.

.03 Federal per diem or M&IE rate. Apayor is not required to reduce the Federalper diem rate or the Federal M&IE ratefor the locality of travel for meals pro-vided in kind, provided the payor has areasonable belief that meal and incidentalexpenses were or will be incurred by theemployee.

.04 Proration of the Federal per diemor M&IE rate. Pursuant to the FederalTravel Regulations, in determining theFederal per diem rate or the FederalM&IE rate for the locality of travel, thefull applicable Federal M&IE rate is avail-able for a full day of travel from 12:01a.m. to 12:00 midnight. For purposes ofdetermining the amount deemed substanti-ated under section 4 or 5 of this revenueprocedure with respect to partial days oftravel away from home, either of the fol-lowing methods may be used to proratethe Federal M&IE rate to determine theFederal per diem rate or the FederalM&IE rate for the partial days of travel:

(1) Such 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 orself-employed individual is travelingaway from home in connection with theperformance of services as an employeeor self-employed individual; or

(2) Such rate may be prorated usingany method that is consistently appliedand in accordance with reasonable busi-ness practice. For example, if an em-ployee travels away from home from 9a.m. one day to 5 p.m. the next day, amethod of proration that results in anamount equal to 2 times the FederalM&IE rate will be treated as being in ac-cordance with reasonable business prac-tice (even though only 1 1/2 times theFederal M&IE rate would be allowedunder the Federal Travel Regulations).

.05 Application of the appropriate §274(n) limitation on meal expenses. All orpart of the amount of an expense deemedsubstantiated under this revenue procedureis subject to the appropriate limitationunder § 274(n) (see section 2.02 of thisrevenue procedure) on the deductibility offood and beverage expenses.

(1) When an amount for meal and inci-dental expenses is computed pursuant tosection 4.03 of this revenue procedure,the taxpayer must treat such amount as anexpense 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 FederalM&IE rate for the locality of travel forsuch day (or partial day, see section 6.04of this revenue procedure) as an expensefor food and beverages.

(3) When a per diem allowance is paidfor lodging, meal, and incidental ex-penses, the payor must treat an amountequal to the Federal M&IE rate for the lo-cality of travel for each calendar day (orpartial day, see section 6.04 of this rev-enue procedure) the employee is awayfrom home as an expense for food andbeverages. For purposes of the precedingsentence, when a per diem allowance forlodging, meal, and incidental expenses ispaid at a rate that is less than the Federalper diem rate for the locality of travel forsuch day (or partial day, see section 6.04of this revenue procedure), the payor maytreat an amount equal to 40 percent ofsuch allowance as the Federal M&IE ratefor the locality of travel for such day (orpartial day, see section 6.04 of this rev-enue procedure).

.06 No double reimbursement or de-duction. If a payor pays a per diem al-lowance in lieu of reimbursing actual ex-penses for lodging, meal, and incidentalexpenses or for meal and incidental ex-penses in accordance with section 4 or 5of this revenue procedure, any additionalpayment with respect to such expenses istreated as paid under a nonaccountableplan, is included in the employee’s grossincome, is reported as wages or othercompensation on the employee’s FormW-2, and is subject to withholding andpayment of employment taxes. Similarly,if an employee or self-employed individ-ual computes the amount allowable as adeduction for meal and incidental ex-

1997–52 I.R.B. 37 December 29, 1997

penses for travel away from home in ac-cordance with section 4.03 or 4.04 of thisrevenue procedure, no other deduction isallowed to the employee or self-employedindividual with respect to such expenses.For example, assume an employee re-ceives a per diem allowance from a payorfor lodging, meal, and incidental expensesor for meal and incidental expenses in-curred while traveling away from home.During that trip, the employee pays fordinner for the employee and two businessassociates. The payor reimburses as abusiness entertainment meal expense themeal expense for the employee and thetwo business associates. Because thepayor also pays a per diem allowance tocover the cost of the employee’s meals,the amount paid by the payor for the em-ployee’s portion of the business entertain-ment meal expense is treated as paidunder a nonaccountable plan, is reportedas wages or other compensation on theemployee’s Form W-2, and is subject towithholding and payment of employmenttaxes.

.07 Related parties. Sections 4.01,4.02, 4.04 (to the extent it relates to sec-tion 4.02), and 5 of this revenue proce-dure will not apply in any case in whicha payor and an employee are relatedwithin the meaning of § 267(b), but forthis purpose the percentage of ownershipinterest referred to in § 267(b)(2) shallbe 10 percent.

SECTION 7. APPLICATION.01 If the amount of travel expenses is

deemed substantiated under the rules pro-vided in section 4 or 5 of this revenue pro-cedure, and the employee actually sub-stantiates to the payor the elements oftime, place, and business purpose of thetravel expenses in accordance with para-graphs (b)(2) (travel away from home)and (c) (other than subparagraph(2)(iii)(A) thereof) of § 1.274–5T, the em-ployee is deemed to satisfy the adequateaccounting requirements of § 1.274–5T(f)as well as the requirement to substantiateby adequate records or other sufficient ev-idence for purposes of § 1.274–5T(c).See § 1.62–2(e)(1) for the rule that anarrangement must require business ex-penses to be substantiated to the payorwithin a reasonable period of time.

.02 An arrangement providing per diemallowances will be treated as satisfying

the requirement of § 1.62–2(f)(2) with re-spect to returning amounts in excess ofexpenses if the employee is required to re-turn within a reasonable period of time (asdefined in § 1.62–2(g)) any portion ofsuch an allowance that relates to days oftravel not substantiated, even though thearrangement does not require the em-ployee to return the portion of such an al-lowance that relates to days of travel sub-stantiated and that exceeds the amount ofthe employee’s expenses deemed substan-tiated. For example, assume a payor pro-vides an employee an advance per diemallowance for meal and incidental ex-penses of $200, based on an anticipated 5days of business travel at $40 per day to alocality for which the Federal M&IE rateis $34, and the employee substantiates 3full days of business travel. The require-ment to return excess amounts will betreated as satisfied if the employee is re-quired to return within a reasonable pe-riod of time (as defined in § 1.62–2(g))the portion of the allowance that is attrib-utable to the 2 unsubstantiated days oftravel ($80), even though the employee isnot required to return the portion of the al-lowance ($18) that exceeds the amount ofthe employee’s expenses deemed substan-tiated under section 4.02 of this revenueprocedure ($102) for the 3 substantiateddays of travel. However, the $18 excessportion of the allowance is treated as paidunder a nonaccountable plan as discussedin section 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 payorthat is less than or equal to the amountdeemed substantiated under the rules pro-vided in section 4 or 5 of this revenueprocedure if the employee substantiatesthe business travel expenses covered bythe per diem allowance in accordancewith section 7.01 of this revenue proce-dure. See § 1.274–5T(f)(2)(i). In addi-tion, such portion of the allowance istreated as paid under an accountable plan,is not reported as wages or other compen-sation on the employee’s Form W–2, andis exempt from the withholding and pay-ment 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 substantiated

under 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 revenueprocedure. See § 1.274–5T(f)(2)(ii). Inaddition, the excess portion of the al-lowance is treated as paid under a nonac-countable plan, is reported as wages orother compensation on the employee’sForm W-2, and is subject to withholdingand payment of employment taxes. See §1.62–2(c)(3)(ii), (c)(5), and (h)(2)(i)(B).

.05 If the amount of the expenses that isdeemed substantiated under the rules pro-vided in section 4.01, 4.02, or 5 of thisrevenue procedure is less than the amountof the employee’s business expenses fortravel away from home, the employeemay claim an itemized deduction for theamount by which the business travel ex-penses exceed the amount that is deemedsubstantiated, provided the employee sub-stantiates all the business travel expenses,includes on Form 2106, Employee Busi-ness Expenses, the deemed substantiatedportion of the per diem allowance re-ceived from the payor, and includes ingross income the portion (if any) of theper diem allowance received from thepayor that exceeds the amount deemedsubstantiated. See § 1.274–5T(f)(2)(iii).However, for purposes of claiming thisitemized deduction with respect to mealand incidental expenses, substantiation ofthe amount of the expenses is not requiredif the employee is claiming a deductionthat is equal to or less than the amountcomputed under section 4.03 of this rev-enue procedure minus the amount deemedsubstantiated under sections 4.02 and 7.01of this revenue procedure. The itemizeddeduction is subject to the appropriatelimitation (see section 2.02 of this rev-enue procedure) on meal and entertain-ment expenses provided in § 274(n) andthe 2-percent floor on miscellaneousitemized deductions provided in § 67.

.06 An employee who does not receivea per diem allowance for meal and inci-dental 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 (see sec-tion 2.02 of this revenue procedure) onmeal and entertainment expenses pro-vided in § 274(n) and the 2-percent floor

December 29, 1997 38 1997–52 I.R.B.

on miscellaneous itemized deductionsprovided in § 67.

.07 A self-employed individual maydeduct an amount computed pursuant tosection 4.03 of this revenue procedure indetermining adjusted gross income under§ 62(a)(1). This deduction is subject tothe appropriate limitation (see section2.02 of this revenue procedure) on mealand entertainment expenses provided in § 274(n).

.08 If a payor’s reimbursement or otherexpense allowance arrangement evi-dences a pattern of abuse of the rules of § 62(c) and the regulations thereunder, allpayments under the arrangement will betreated as made under a nonaccountableplan. Thus, such payments are includedin the employee’s gross income, are re-ported as wages or other compensation onthe employee’s Form W-2, and are subjectto withholding and payment of employ-ment taxes. See § 1.62–2(c)(3), (c)(5),and (h)(2).

SECTION 8. WITHHOLDING ANDPAYMENT OF EMPLOYMENTTAXES.

.01 The portion of a per diem al-lowance, if any, that relates to the days ofbusiness travel substantiated and that ex-ceeds the amount deemed substantiatedfor those days under section 4.01, 4.02, or5 of this revenue procedure is subject towithholding and payment of employmenttaxes. See § 1.62–2(h)(2)(i)(B).

.02 In the case of a per diem allowancepaid as a reimbursement, the excess de-scribed in section 8.01 of this revenueprocedure is subject to withholding andpayment of employment taxes in the pay-roll period in which the payor reimbursesthe expenses for the days of travel sub-stantiated. See § 1.62–2(h)(2)(i)(B)(2).

.03 In the case of a per diem allowancepaid as an advance, the excess describedin section 8.01 of this revenue procedureis subject to withholding and payment ofemployment taxes no later than the firstpayroll 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 oftravel with respect to which the advancewas paid are not substantiated within areasonable period of time and the em-

ployee does not return the portion of theallowance that relates to those dayswithin a reasonable period of time, theportion of the allowance that relates tothose days is subject to withholding andpayment of employment taxes no laterthan the first payroll period followingthe end of the reasonable period. See § 1.62–2(h)(2)(i)(A).

.04 In the case of a per diem allowanceonly for meal and incidental expenses fortravel 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 ofthe per diem allowance paid for the periodover the amount deemed substantiated forthe period under section 4.02 of this rev-enue procedure (after applying section4.04(3) of this revenue procedure), is sub-ject to withholding and payment of em-ployment taxes no later than the first pay-roll period following the payroll period inwhich the excess 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 towhich the employee travels. The em-ployer does not require the employee toreturn the 20 percent by which the reim-bursement for those expenses exceeds theFederal per diem rate. The employee sub-stantiates 6 days of travel away fromhome: 2 days in a locality in which theFederal per diem rate is $100 and 4 daysin a locality in which the Federal per diemrate is $125. The employer reimbursesthe employee $840 for the 6 days of travelaway from home (2 3 (120% 3 $100) 143 (120% 3 $125)), and does not requirethe employee to return the excess paymentof $140 ((2 days 3 $20 ($120–$100) 1 4days x $25 ($150–$125)). For the payrollperiod in which the employer reimbursesthe expenses, the employer must withholdand pay employment taxes on $140. Seesection 8.02 of this revenue procedure.

SECTION 9. EFFECT ON OTHERDOCUMENTS

Rev. Proc. 96–64 is hereby supersededfor per diem allowances paid to an em-ployee on or after January 1, 1998, with

respect to lodging, meal, and incidentalexpenses or with respect to meal and inci-dental expenses paid or incurred for travelwhile away from home on or after Janu-ary 1, 1998, and, for purposes of comput-ing the amount allowable as a deduction,for meal and incidental expenses paid orincurred by an employee or self-em-ployed individual for travel while awayfrom home on or after January 1, 1998.


The principal author of this revenueprocedure is Edwin B. Cleverdon of theOffice of Assistant Chief Counsel (In-come Tax and Accounting). For furtherinformation regarding this revenue proce-dure, contact Mr. Cleverdon on (202)622-4920 (not a toll-free call).

26 CFR 601.602: Tax forms and instructions.(Also Part I, sections 6012, 6061; 1.6012–5,1.6061–1)

Rev. Proc. 97–60

CONTENTS

SECTION 1 PURPOSESECTION 2 BACKGROUND AND

CHANGESSECTION 3 ELECTRONIC FILING

PARTICIPANTS—DEFI-NITIONS

SECTION 4 ACCEPTANCE IN THEFORM 1040 ELEC-TRONIC FILING PRO-GRAM

SECTION 5 RESPONSIBILITIES OFAN ELECTRONICFILER

SECTION 6 PENALTIESSECTION 7 FORM 8453, U.S. INDI-

VIDUAL INCOME TAXDECLARATION FORELECTRONIC FILING

SECTION 8 INFORMATION ANELECTRONIC FILERMUST PROVIDE TOTHE TAXPAYER

SECTION 9 DIRECT DEPOSITOFREFUNDS

SECTION 10 REFUND ANTICIPA-TION LOANS

SECTION 11 BALANCE DUE RE-TURNS

SECTION 12 ADVERTISING STAN-

1997–52 I.R.B. 39 December 29, 1997

DARDS FOR ELEC-TRONIC FILERS ANDFINANCIAL INSTITU-TIONS

SECTION 13 MONITORING ANDSUSPENSION OF ANELECTRONIC FILER

SECTION 14 ADMINISTRATIVE RE-VIEW PROCESS FORDENIAL OFPARTICIPATION INTHE FORM 1040 ELEC-TRONIC FILING PRO-GRAM

SECTION 15 ADMINISTRATIVE RE-VIEW PROCESS FORSUSPENSION FROMTHE FORM 1040 ELEC-TRONIC FILING PRO-GRAM

SECTION 16 VITA AND TCE SPON-SORED ELECTRONICFILING

SECTION 17 EMPLOYER SPON-SORED ELECTRONICFILING

SECTION 18 EFFECT ON OTHERDOCUMENTS

SECTION 19 EFFECTIVE DATESECTION 20 INTERNAL REVENUE

SERVICE OFFICECONTACT

SECTION 21 PAPERWORK REDUC-TION ACT

SECTION 1. PURPOSE

This revenue procedure informs thosewho participate in the Form 1040 Elec-tronic Filing (ELF) Program of theirobligations to the Internal Revenue Ser-vice, taxpayers, and other participants.The following returns can be filed underthe Form 1040 ELF Program: (1) 1997Form 1040 and 1997 Form 1040A, U.S.Individual Income Tax Return; and (2)1997 Form 1040EZ, Income Tax Returnfor Single and Joint Filers With No De-pendents. This revenue procedure up-dates and supersedes Rev. Proc. 96-61,1996–2 C.B. 401.


.01 Section 1.6012–5 of the IncomeTax Regulations provides that the Com-missioner may authorize the use, at theoption of a person required to make a re-turn, of a composite return in lieu of any

form specified in 26 CFR Part 1 (IncomeTax), subject to the conditions, limita-tions, and special rules governing thepreparation, execution, filing, and correc-tion thereof as the Commissioner maydeem appropriate.

.02 For purposes of this revenue pro-cedure, an electronically filed Form1040, Form 1040A, or Form 1040EZ is acomposite return consisting of electroni-cally transmitted data and certain paperdocuments. The paper portion of the re-turn consists of Form 8453, U.S. Individ-ual Income Tax Declaration for Elec-tronic Filing, and other paper documentsthat cannot be electronically transmitted.Form 8453 must be received by the Ser-vice before the composite return is con-sidered filed (see section 5.08 of this rev-enue procedure). The composite returnmust contain the same information that areturn filed completely on paper contains.See section 7 of this revenue procedurefor procedures for completing Form8453.

.03 The Service will periodically issuePublication 1345, Handbook for Elec-tronic Filers of Individual Income TaxReturns, that lists the forms and sched-ules associated with the Form 1040 seriesthat can be electronically transmitted.

.04 For the purposes of the Form 1040ELF Program, a 1997 Form 1040, Form1040A, or Form 1040EZ cannot be elec-tronically filed after October 15, 1998,notwithstanding the fact that the taxpayerhas been granted an extension to file a re-turn beyond that date.

.05 An amended tax return cannot beelectronically filed under the Form 1040ELF Program. A taxpayer must file anamended tax return on paper in accor-dance with the instructions for Form1040X, Amended U.S. Individual IncomeTax Return.

.06 A tax return that has a foreign ad-dress for the taxpayer cannot be electroni-cally filed under the Form 1040 ELF Pro-gram. Army/Air Force (APO) and Fleet(FPO) post offices are not considered for-eign addresses.

.07 A tax return for a decedent cannotbe electronically filed under the Form1040 ELF Program. The decedent’sspouse or personal representative mustfile a paper tax return for the decedent.

.08 This revenue procedure updatesand supersedes Rev. Proc. 96–61, 1996–2

C.B. 401. The updates include changes inthe Form 1040 ELF Program, clarifica-tion of prior Form 1040 ELF Programstatements, and additional guidance de-rived from other Service documents thatrelate to the Form 1040 ELF Program.Some of the updates are:

(1) additional fingerprint cards are notrequired for an application to operate anelectronic filing business at a new loca-tion (section 4.02(4));

(2) the application period for the Form1040 ELF Program runs from September2, 1997, through December 1, 1997 (sec-tion 4.05(1));

(3) a proof of sale must be attached toan application from the purchaser of anexisting Electronic Filer (section 4.05(2));

(4) all applications for the Form 1040ELF Program must be sent to the AndoverService Center (sections 4.07 and 5.07);

(5) the definition of Responsible Offi -cial is clarified to reflect that a Responsi-ble Official may also be a Principal (sec-tion 4.11));

(6) an individual who is an attorneymay submit evidence of professional sta-tus in lieu of a fingerprint card providedthe individual is not currently under sus-pension or disbarment from practice be-fore the Service or the bar of the highestcourt of any State, Commonwealth, pos-session, territory, or the District of Co-lumbia (section 4.13(1));

(7) an individual who is a certified pub-lic accountant may submit evidence ofprofessional status in lieu of a fingerprintcard provided the individual is not cur-rently under suspension or disbarmentfrom practice before the Service, orwhose license to practice is not currentlysuspended or revoked by any State, Com-monwealth, possession, territory, or theDistrict of Columbia (section 4.13(2));

(8) timely notification that an Elec-tronic Filer has discontinued participationin the Form 1040 ELF Program must besent to the Andover Service Center (sec-tion 5.07);

(9) the complete paper copy of the re-turn furnished to the taxpayer need not in-clude the social security number of thepaid preparer (section 8.01);

(10) a printout of the electronic portionof the return does not have to be providedto the taxpayer if the taxpayer provided acompleted tax return for electronic filingand the information on the electronic por-

December 29, 1997 40 1997–52 I.R.B.

tion of the return is identical to the infor-mation on the completed tax return (sec-tion 8.01); and

(11) the Andover Service Center is theoffice responsible for accepting or reject-ing an application to participate in theForm 1040 ELF Program (sections 14.02through 14.07).

SECTION 3. ELECTRONIC FILINGPARTICIPANTS—DEFINITIONS

.01 After acceptance into the Form1040 ELF Program, as described in sec-tion 4 of this revenue procedure, a partic-ipant is referred to as an “ElectronicFiler.”

.02 The Electronic Filer categories are: (1) ELECTRONIC RETURN ORIGI-

NATOR. An “Electronic Return Origina-tor” (ERO) is: (a) an “Electronic ReturnPreparer” who prepares tax returns, in-cluding Forms 8453, for taxpayers whointend to have their returns electronicallyfiled; and/or (b) an “Electronic ReturnCollector” who accepts completed tax re-turns, including Forms 8453, from tax-payers who intend to have their returnselectronically filed.

(2) SERVICE BUREAU. A “ServiceBureau” receives tax return informationon any media from an ERO, formats thereturn information, and either forwardsthe return information to a Transmitter orsends back the return information to theERO. A Service Bureau may send Forms8453 to the appropriate service center.

(3) SOFTWARE DEVELOPER. A“Software Developer” develops softwarefor the purposes of (a) formatting returnsaccording to the Service’s electronic re-turn specifications; and/or (b) transmit-ting electronic returns directly to the Ser-vice. A Software Developer may also sellits software.

(4) TRANSMITTER. A “Transmitter”transmits the electronic portion of a returndirectly to the Service. An entity that pro-vides a “bump-up” service is a Transmit-ter. A bump-up service provider increasesthe transmission rate or line speed of for-matted or reformatted information that isbeing sent to the Service via a publicswitched telephone network. The Serviceaccepts both asynchronous and bisyn-chronous communications protocols.

.03 The Electronic Filer categories arenot mutually exclusive. For example, anERO can, at the same time, be considered

a Transmitter, Software Developer, orService Bureau depending on the func-tion(s) performed.

.04 An Electronic Filer may have a“Drop-Off Collection Point(s).” The ac-tivity at a Drop-Off Collection Point islimited solely to receiving a return or re-turn information that a taxpayer wants tohave electronically filed and collecting afee for electronically filing that return.Return preparation activity may not beconducted at a Drop-Off Collection Point.Return preparation activity includes, butis not limited to, comparing amountslisted on Form 8453 with those on thepaper return or return information pro-vided by a taxpayer and verifying routingnumbers and account numbers used fordirect deposit of refunds. Return prepara-tion activity does not include collecting afee for electronic filing or ensuring thatthe taxpayer has signed Form 8453. AnElectronic Filer need not have an owner-ship interest in the Drop-Off CollectionPoint.

SECTION 4. ACCEPTANCE IN THEFORM 1040 ELECTRONIC FILINGPROGRAM

.01 Except as provided in sections 4.02through 4.04 of this revenue procedure,an Electronic Filer that actively partici-pated in the most recent Form 1040 ELFProgram does not have to reapply to par-ticipate in the Form 1040 ELF Program.However, an Electronic Filer that intendsto participate as a Transmitter or a Soft-ware Developer in the Form 1040 ELFProgram must first successfully completethe testing referred to in section 4.08 ofthis revenue procedure. In addition, sec-tion 4.15 of this revenue procedure pro-vides for the Service’s issuance of creden-tials necessary for participation in theForm 1040 ELF Program.

.02 Applicants and Electronic Filersmust file a new Form 8633, Applicationto Participate in the Electronic Filing Pro-gram, with completed fingerprint cardsfor the appropriate individuals, if:

(1) the applicant has never participatedin the Form 1040 ELF Program;

(2) the applicant has previously beendenied participation in the Form 1040ELF Program;

(3) the applicant has been suspendedfrom the Form 1040 ELF Program; or

(4) the Electronic Filer is participating

in the Form 1040 ELF Program and wantsto operate an electronic filing business atan additional location (except that an in-dividual listed on the Electronic Filer’sapplication who has previously submitteda fingerprint card does not need to submitan additional fingerprint card).

.03 To participate in the Form 1040ELF Program, an Electronic Filer in themost recent Form 1040 ELF Programmust submit a revised Form 8633, signedby all “Principals” and the “ResponsibleOfficial” (as described in sections 4.09through 4.12 of this revenue procedure),with completed fingerprint cards for theappropriate individuals, if:

(1) the Electronic Filer functionedsolely as a Software Developer during themost recent Form 1040 ELF Program andintends to function as an ERO, ServiceBureau, or Transmitter during the Form1040 ELF Program;

(2) there is an additional Principal,such as a partner or a corporate officer,that must be listed on Form 8633, line 8,“Principals of Your Firm or Organiza-tion”;

(3) there is a Principal listed on Form8633, line 8, that should be deleted; or

(4) the Responsible Official on Form8633, line 9 changes.

.04 Except as provided in section 4.03of this revenue procedure, to participatein the Form 1040 ELF Program, an Elec-tronic Filer in the most recent Form 1040ELF Program must submit either a re-vised Form 8633, or a letter containingthe same information contained in a re-vised Form 8633, if any information onthe Electronic Filer’s Form 8633 haschanged. A revised Form 8633 or lettersubmitted under this section should in-clude only the information requested onlines 1a through 1i of Form 8633 and theinformation being revised. A Principal ora Responsible Official must sign the re-vised Form 8633 or the letter.

.05 Applicants and Electronic Filersdescribed in section 4.02 of this revenueprocedure must submit new applicationswithin the following time periods:

(1) except as provided in section4.05(2) of this revenue procedure, the ap-plication period runs from September 2,1997, through December 1, 1997; and

(2) if an applicant purchases an existingElectronic Filer’s business on or after No-vember 1, 1997, a new application with

1997–52 I.R.B. 41 December 29, 1997

proof of sale attached must be submittedwithin 30 days after the date of the pur-chase.

.06 Revised applications described insections 4.03 and 4.04 of this revenueprocedure must be submitted within 30days of the change(s) reflected on the re-vised Form 8633 or in the letter.

.07 Applicants and Electronic Filersdescribed in sections 4.02 through 4.04 ofthis revenue procedure must file Form8633 (or a letter as provided in section4.04 of this revenue procedure) with theAndover Service Center.

.08 Applicants and Electronic Filersdescribed in sections 4.01 through 4.04 ofthis revenue procedure that intend to par-ticipate as a Transmitter or a Software De-veloper in the Form 1040 ELF Programmust first successfully complete the nec-essary testing at the appropriate servicecenter(s).

.09 Each individual listed as a Princi-pal or a Responsible Official must:

(1) be a United States citizen or analien lawfully admitted for permanent res-idence as described in 8 U.S.C. § 1101(a)-(20) (1994);

(2) have attained the age of 21 as of thedate of application;

(3) submit with Form 8633 one stan-dard fingerprint card with a full set of fin-gerprints taken by a law enforcementagency, except as provided in section 4.13of this revenue procedure;

(4) pass a suitability check that in-cludes a credit check, a tax compliancecheck, and a fingerprint check; and

(5) meet any applicable state and locallicensing and/or bonding requirements inconnection with the preparation of tax re-turns and the collection of prepared re-turns that taxpayers intend to have elec-tronically filed. However, if the state andlocal licensing and/or bonding require-ments apply to a business entity, the indi-vidual(s) must demonstrate that the busi-ness entity meets the requirements.

.10 A Principal for a firm or organiza-tion includes the following:

(1) Sole Proprietorship. The sole pro-prietor is the Principal for a sole propri-etorship.

(2) Partnership. Each partner who hasa 5 percent or more interest in the partner-ship is a Principal of the partnership. Ifno partner has at least a 5 percent or moreinterest in the partnership, the Principal is

an individual authorized to act for thepartnership in legal and/or tax matters (atleast one such individual must be listed onForm 8633).

(3) Corporation. The President, Vice-President, Secretary, and Treasurer of thecorporation are each a Principal of thecorporation.

(4) Other. The Principal for a for-profitentity that is not a sole proprietorship,partnership, or corporation, is an individ-ual authorized to act for the entity in legaland/or tax matters (at least one such indi-vidual must be listed on Form 8633).

.11 A Responsible Official is the indi-vidual who oversees the daily operationsof an Electronic Filer’s office. A Respon-sible Official may also be a Principal. Asset forth in section 4.12 of this revenueprocedure, a Responsible Official may beresponsible for more than one office.

.12 The Responsible Official cate-gories are:

(1) TIER I RESPONSIBLE OFFI-CIAL. A “Tier I Responsible Official” isa Responsible Official who does not meetthe definition of a “Tier II ResponsibleOfficial.” A Tier I Responsible Officialshould be able to visit on a daily basiseach office for which he or she is listed asa Responsible Official. A Tier I Respon-sible Official may be listed on a maxi-mum of ten applications (Forms 8633).

(2) TIER II RESPONSIBLE OFFI-CIAL. A “Tier II Responsible Official” isan individual who has participated in theForm 1040 ELF Program as a Responsi-ble Official during at least the two mostrecent filing seasons and who has neverbeen suspended from participation in theForm 1040 ELF Program. A Tier II Re-sponsible Official should be able to visiton a daily basis any office for which he orshe is listed as a Responsible Official. ATier II Responsible Official may be listedon a maximum of twenty applications(Forms 8633).

.13 An individual may choose to sub-mit evidence of the individual’s profes-sional status in lieu of a standard finger-print card if the individual is:

(1) an attorney in good standing of thebar of the highest court of any State,Commonwealth, possession, territory, orthe District of Columbia, and is not cur-rently under suspension or disbarmentfrom practice before the Service or the barof the highest court of any State, Com-

monwealth, possession, territory, or theDistrict of Columbia;

(2) a certified public accountant who isduly qualified to practice as a certifiedpublic accountant in any State, Common-wealth, possession, territory, or the Dis-trict of Columbia, and is not currentlyunder suspension or disbarment frompractice before the Service or whose li-cense to practice is not currently sus-pended or revoked by any State, Com-monwealth, possession, territory, or theDistrict of Columbia;

(3) an enrolled agent pursuant to part10 of 31 C.F.R. Subtitle A;

(4) an officer of a publicly held corpo-ration; or

(5) a banking official who is bondedand has been fingerprinted within the lasttwo years.

.14 If an Electronic Filer has a foreignlocation, the stateside contact representa-tive will receive all Service correspon-dence for the foreign location relating tothe Form 1040 ELF Program.

.15 The Service will issue credentialsto eligible applicants for the Form 1040ELF Program, as well as Electronic Fil-ers that do not have to reapply pursuantto section 4.01, 4.03, or 4.04 of this rev-enue procedure (provided they have firstsatisfactorily completed the testing de-scribed in section 4.08 of this revenueprocedure if they intend to participate asa Transmitter or Software Developer).No one may participate in the Form 1040ELF Program without the following cre-dentials:

(1) a letter of acceptance into the Form1040 ELF Program;

(2) an Electronic Filing IdentificationNumber (EFIN) or a Service Bureau Iden-tification Number (SBIN);

(3) if appropriate, an Electronic Trans-mitter Identification Number (ETIN); and

(4) if appropriate, a Collection PointIdentification Number (CPIN).

.16 The Service will not issue a letterof acceptance to participate in the Form1040 ELF Program to an ERO if the Ser-vice did not receive and accept during themost recent Form 1040 ELF Program anyelectronically filed returns containing theERO’s EFIN. In addition, an ERO maybe dropped from the Form 1040 ELF Pro-gram if the Service does not receive andaccept prior to April 15, 1998, any elec-tronically filed returns containing the

December 29, 1997 42 1997–52 I.R.B.

ERO’s EFIN. In either case, the Servicewill notify the ERO that it has beendropped from the Form 1040 ELF Pro-gram and explain what steps the EROneeds to take for future participation inthe program.

.17 If an Electronic Filer is a SoftwareDeveloper that performs no other functionin the Form 1040 ELF Program but soft-ware development, no Principal or Re-sponsible Official needs to pass a suitabil-ity check.

.18 If an Electronic Filer will have aDrop-Off Collection Point(s) (as definedin section 3.04 of this revenue procedure),an Electronic Filer must submit a Form8633 that lists each Drop-Off CollectionPoint. By listing a Drop-Off CollectionPoint on Form 8633, an Electronic Filerbecomes a “parent” in relation to a listedDrop-Off Collection Point.

.19 The Service may reject an applica-tion to participate in the Form 1040 ELFProgram for the following reasons (thislist is not all-inclusive). These reasonsapply to any firm, organization, Principal,or Responsible Official listed on Form8633:

(1) conviction of any criminal offenseunder the revenue laws of the UnitedStates, or of any offense involving dis-honesty or breach of trust;

(2) failure to file timely and accuratetax returns, including returns indicatingthat no tax is due;

(3) failure to timely pay any tax liabili-ties;

(4) assessment of tax penalties;(5) suspension/disbarment from practicebefore the Service;

(6) disreputable conduct or other factsthat would reflect adversely on the Form1040 ELF Program;

(7) misrepresentation on an applica-tion;

(8) suspension or rejection from theprogram in a prior year;

(9) unethical practices in return prepa-ration;

(10) stockpiling returns prior to officialacceptance into the Form 1040 ELF Pro-gram (see section 5.14 of this revenueprocedure);

(11) knowingly and directly or indi-rectly employing or accepting assistancefrom any firm, organization, or individualthat is prohibited from applying to partici-

pate in the Form 1040 ELF Program (seesection 13.10 of this revenue procedure)or that is suspended from participating inthe Form 1040 ELF Program (see section13.11 of this revenue procedure). This in-cludes any individual whose actions re-sulted in the rejection or suspension of acorporation or a partnership from theForm 1040 ELF Program; or

(12) knowingly and directly or indi-rectly accepting employment as an associ-ate, correspondent, or as a subagent from,or sharing fees with, any firm, organiza-tion, or individual that is prohibited fromapplying to participate in the Form 1040ELF Program (see section 13.10 of thisrevenue procedure) or that is suspendedfrom participating in the Form 1040 ELFProgram (see section 13.11 of this rev-enue procedure). This includes any indi-vidual whose actions resulted in the rejec-tion or suspension of a corporation or apartnership from the Form 1040 ELF Pro-gram.

SECTION 5. RESPONSIBILITIES OFAN ELECTRONIC FILER

.01 To ensure that complete returns areaccurately and efficiently filed, an Elec-tronic Filer must comply with all publica-tions and notices of the Service relating toelectronic filing. Currently, these publi-cations and notices include:

(1) Publication 1345, Handbook forElectronic Filers of Individual IncomeTax Returns, and Publication 1345A,Handbook for Electronic Filers of Indi-vidual Income Tax Returns (Supplement);

(2) Publication 1346, Electronic ReturnFile Specifications and Record Layoutsfor Individual Income Tax Returns;

(3) Publication 1436, Test Package forElectronic Filing of Individual IncomeTax Returns; and

(4) Postings to the Electronic FilingSystem Bulletin Board (EFS BulletinBoard).

.02 An Electronic Filer must maintaina high degree of integrity, compliance,and accuracy.

.03 An Electronic Filer may accept re-turns for electronic filing only from tax-payers, from Drop-Off Collection Pointsas listed on the Electronic Filer’s Form8633 (see section 4.18 of this revenueprocedure), or from another ElectronicFiler.

.04 If the taxpayer’s address on a FormW-2, Wage and Tax Statement, Form W-2G, Statement for Recipients of CertainGambling Winnings, Form 1099–R, Dis-tributions From Pensions, Annuities, Re-tirement or Profit-Sharing Plans, IRAs,Insurance Contracts, etc., Form 1040,Schedule C, Profit or Loss From Business(Sole Proprietorship), or Form 1040,Schedule C-EZ, Profit or Loss FromBusiness - Short Version, or any other taxform is different than the taxpayer’s ad-dress in the entity section of the electronicportion of the taxpayer’s Form 1040, theERO or the Service Bureau must input fortransmission to the Service those ad-dresses that differ from the taxpayer’s ad-dress on the electronic portion of the tax-payer’s Form 1040.

.05 If an Electronic Filer charges a feefor the electronic transmission of a tax re-turn, the fee may not be based on a per-centage of the refund amount or any otheramount from the tax return. An Elec-tronic Filer may not charge a separate feefor Direct Deposit. See section 9 of thisrevenue procedure.

.06 An Electronic Filer must submit arevised Form 8633 (or a letter as providedin section 4.04 of this revenue procedure)to the Andover Service Center within 30days of when any of the conditions orchanges described in section 4.03 or 4.04of this revenue procedure occur. See sec-tion 4.06 of this revenue procedure.

.07 An Electronic Filer must notify theAndover Service Center within 30 days ofdiscontinuing its participation in the Form1040 ELF Program. This does not pre-clude reapplication in the future.

.08 An Electronic Filer must ensurethat it promptly processes returns submit-ted to it for electronic filing. See sections5.14, 5.15, 5.16, and 7.01 of this revenueprocedure. However, an Electronic Filerthat receives a return for electronic filingon or before the due date of the returnmust ensure that the electronic return isfiled on or before that due date (includingextensions). An electronic return is notconsidered filed until the electronic por-tion of the tax return has been acknowl-edged by the Service as accepted for pro-cessing and a completed and signed Form8453 has been received by the Service.However, if the electronic portion of a re-turn is successfully transmitted on or

1997–52 I.R.B. 43 December 29, 1997

shortly before the due date and the Elec-tronic Filer complies with section 7.01 ofthis revenue procedure, the return will bedeemed timely filed. If the electronicportion of a return is transmitted on orshortly before the due date and is ulti-mately rejected, but the Electronic Filerand the taxpayer comply with section5.13 of this revenue procedure, the returnwill be deemed timely filed. For a bal-ance due return, see section 11 of this rev-enue procedure for instructions on how tomake a timely payment of tax.

.09 An Electronic Filer that functionsas an ERO must:

(1) comply with the procedures forcompleting and securing Forms 8453 de-scribed in section 7 of this revenue proce-dure;

(2) comply with the procedures de-scribed in section 11 of this revenue pro-cedure for handling a balance due return;

(3) while returns are being filed by theERO, retain and make available to theService upon request the following mater-ial at the business address from which areturn was accepted for electronic filing:

(a) a copy of the signed Form 8453 andpaper copies of Forms W–2, W–2G, and1099–R;

(b) a complete copy of the electronicportion of the return (may be retained onmagnetic media) that can be readily andaccurately converted into an electronictransmission that the Service can process;and

(c) the acknowledgement file receivedfrom the Service or from a third partyTransmitter; and

(4) retain until the end of the calendaryear in which a return was filed, andmake available to the Service upon re-quest the materials described in section5.09(3) of this revenue procedure at ei-ther the business address from which areturn was electronically filed or from thecontact representative named on Form8633.

.10 An ERO who is the paid preparer ofan electronic tax return must also retainfor the prescribed amount of time the ma-terials described in § 1.6107–1(b) that arerequired to be kept by an income tax re-turn preparer.

.11 An ERO must identify the paid pre-parer (if any) in the appropriate field ofthe electronic return and ensure that the

paid preparer signed Form 8453. If Form8453 is not signed by the paid preparer,the ERO must attach to Form 8453 a copyof pages 1 and 2 of the Form 1040EZ,Form 1040A, or Form 1040 signed by thepaid preparer. These copies must bemarked “COPY-DO NOT PROCESS” toprevent duplicate filings.

.12 An ERO must ensure against theunauthorized use of its EFIN and, if ap-plicable, the CPIN(s) issued to its Drop-Off Collection Point(s). An ERO mustnot transfer its EFIN or the CPIN(s) of itsDrop-Off Collection Point(s) by sale,merger, loan, gift, or otherwise to anotherentity.

.13 If the Service rejects the electronicportion of a taxpayer’s return (the Ser-vice states whether it accepts or rejectsthe electronic portion of a taxpayer’s re-turn in an “acknowledgment file”), andthe reason for the rejection cannot be rec-tified by the actions described in section6.02(3) of this revenue procedure, theERO, within 24 hours of receiving the re-jection, must take reasonable steps to in-form the taxpayer that the taxpayer’s re-turn has not been filed. When the EROadvises the taxpayer that the taxpayer’sreturn has not been filed, the ERO mustprovide the taxpayer with the rejectcode(s), an explanation of the rejectcode(s), and the sequence number of eachreject code(s). If the taxpayer choosesnot to have the electronic portion of thereturn corrected and transmitted to theService, or if the electronic portion of thereturn cannot be accepted for processingby the Service, the taxpayer must file apaper return by the later of:

(1) the due date of the return; or (2) ten calendar days after the date the

Service gives notification that the elec-tronic portion of the return is rejected orthat the electronic portion of the returncannot be accepted for processing.

The paper return should include an ex-planation of why the return is being filedafter the due date.

.14 An ERO is responsible for ensuringthat stockpiling does not occur at its of-fice(s) or Drop-Off Collection Point(s).Stockpiling means collecting returns fromtaxpayers or from another Electronic Filerprior to official acceptance into the Form1040 ELF Program, or, after official accep-tance into the Form 1040 ELF Program,

waiting more than three calendar days totransmit a return to the Service after re-ceiving the information necessary for anelectronic transmission of a tax return.

.15 An Electronic Filer who partici-pates as a Service Bureau must:

(1) deliver all electronic returns to aTransmitter or to the ERO who gave theelectronic returns to the Service Bureauwithin three calendar days of receipt;

(2) retrieve the acknowledgement filefrom the Transmitter within one calendarday of receipt by the Transmitter;

(3) send the acknowledgement file tothe ERO (whether related or not) withinone work day of retrieving the acknowl-edgement file;

(4) if the Service Bureau processesForms 8453, send back to the ERO anyreturn and Form 8453 that needs correc-tion, unless the correction is described insection 6.02(3) of this revenue procedure;

(5) accept tax return information onlyfrom Electronic Filers;

(6) include its SBIN and the ERO’sEFIN with all return information the Ser-vice Bureau forwards to a Transmitter orsends back to an ERO;

(7) retain each acknowledgement filereceived from a Transmitter until the endof the calendar year in which the elec-tronic return was filed;

(8) if requested, serve as a contact pointbetween its client EROs and the Service;

(9) if requested, provide the Servicewith a list of each client ERO; and

(10) ensure against the unauthorizeduse of its SBIN. A Service Bureau mustnot transfer its SBIN by sale, merger,loan, gift, or otherwise to another entity.

.16 An Electronic Filer who partici-pates as a Transmitter must:

(1) transmit all electronic returnswithin three calendar days of receipt;

(2) retrieve the acknowledgement filewithin two work days of transmission;

(3) match the acknowledgement file tothe original transmission file and send theacknowledgement file to the ERO or theService Bureau (whether or not the EROor the Service Bureau are related to theTransmitter) within two work days of re-trieving the acknowledgement file;

(4) retain an acknowledgement file re-ceived from the Service until the end ofthe calendar year in which the electronicreturn was filed;

December 29, 1997 44 1997–52 I.R.B.

(5) immediately contact the appropriateservice center’s Electronic Filing Unit forfurther instructions if an acknowledge-ment of acceptance for processing has notbeen received by the Transmitter withintwo work days of transmission or if aTransmitter receives an acknowledgementfor a return that was not transmitted onthe designated transmission;

(6) promptly correct any transmissionerror that causes an electronic transmis-sion to be rejected;

(7) contact the appropriate service cen-ter’s Electronic Filing Unit for assistanceif a return has been rejected after threetransmission attempts;

(8) ensure the security of all transmit-ted data;

(9) ensure against the unauthorized useof its EFIN or ETIN. A Transmitter mustnot transfer its EFIN or ETIN by sale,merger, loan, gift, or otherwise to anotherentity; and

(10) not use software that has a Serviceassigned production password built intothe software.

.17 A Transmitter who provides trans-mission services to other unrelated Elec-tronic Filers must accept electronic re-turns for transmission to the Service onlyfrom accepted Electronic Filers. A Trans-mitter must include the ERO’s EFIN andif applicable, the CPIN on each return thatthe Transmitter accepts from an ERO. Inaddition, a Transmitter must also includea Service Bureau’s SBIN if a Service Bu-reau formats the return information.

.18 An Electronic Filer who partici-pates as a Software Developer must:

(1) promptly correct any software errorwhich causes the electronic portion of areturn to be rejected;

(2) promptly distribute any softwarecorrection;

(3) ensure that any software packagethat will be used to transmit electronic re-turns from multiple Electronic Filers hasthe capability of combining returns fromthese Electronic Filers into one Servicetransmission file taking into account thesorting requirements of the DeclarationControl Number (DCN);

(4) ensure that no other entity uses theSoftware Developer’s EFIN or ETIN. ASoftware Developer must not transfer bysale, merger, loan, gift, or otherwise itsEFIN or ETIN to another entity; and

(5) not incorporate into its software aService assigned production password.

.19 An Electronic Filer with a Drop-Off Collection Point is the ERO for thatDrop-Off Collection Point. The EROmust clearly display its name at eachDrop-Off Collection Point. The Servicewill hold the ERO responsible for any vi-olation of the advertising standards de-scribed in section 12 or any other viola-tion of this revenue procedure that occursat a Drop-Off Collection Point listed onthe ERO’s Form 8633. The ERO mustalso serve as the contact point betweenthe Service and the Drop-Off CollectionPoint for all correspondence includingproblem resolution and report evaluation.

.20 In addition to the specific responsi-bilities described in this section, an Elec-tronic Filer must meet all the require-ments in this revenue procedure to retainthe privilege of participating in the Form1040 ELF Program.

SECTION 6. PENALTIES

.01 Penalties for Disclosure or Use ofInformation.

(1) An Electronic Filer, except a Soft-ware Developer, is a tax return preparer(Preparer) under the definition of § 301.7216–1(b) of the Regulations onProcedure and Administration. A Pre-parer is subject to a criminal penalty forunauthorized disclosure or use of tax re-turn information. See § 7216 of the Inter-nal Revenue Code and § 301.7216–1(a).In addition, § 6713 establishes civilpenalties for unauthorized disclosure oruse of tax return information.

(2) Under § 301.7216–2(h), disclosureof tax return information among acceptedElectronic Filers for the purpose ofpreparing a return is permissible. For ex-ample, an ERO may pass on tax return in-formation to a Service Bureau and/or aTransmitter for the purpose of having anelectronic return formatted and transmit-ted to the Service. However, if the tax re-turn information is disclosed or used inany other way, a Service Bureau and/or aTransmitter may be subject to the penal-ties described in section 6.01(1) of thisrevenue procedure.

.02 Other Preparer Penalties.(1) Preparer penalties may be asserted

against an individual or firm meeting thedefinition of an income tax return preparer

under § 7701(a)(36) and § 301.7701–15.Preparer penalties that may be assertedunder appropriate circumstances include,but are not limited to, those set forth in §§6694, 6695, and 6713.

(2) Under § 301.7701–15(d), Elec-tronic Return Collectors, Service Bu-reaus, Transmitters, and Software Devel-opers are not income tax return preparersfor the purpose of assessing most preparerpenalties as long as their services are lim-ited to “typing, reproduction, or other me-chanical assistance in the preparation of areturn or claim for refund.”

(3) If an Electronic Return Collector,Service Bureau, Transmitter, or the prod-uct of a Software Developer alters the re-turn information in a nonsubstantive way,this alteration will be considered to comeunder the “mechanical assistance” excep-tion described in § 301.7701–15(d)(1). Anonsubstantive change is a correction orchange limited to a transposition error,misplaced entry, spelling error, or arith-metic correction that falls within the fol-lowing tolerances:

(a) the amount of “Total tax”, “Federalincome tax withheld”, “Refund”, or“Amount you owe” on Form 8453 differsfrom the corresponding amount on theelectronic portion of the tax return by nomore than $7;

(b) the amount of “Total income” onForm 8453 differs from the correspondingamount on the electronic portion of thetax return by no more than $25; or

(c) dropping cents and rounding towhole dollars.

(4) If an Electronic Return Collector,Service Bureau, or Transmitter alters thereturn information in a substantive way,rather than having the taxpayer alter thereturn, the Electronic Return Collector,Service Bureau, or Transmitter will beconsidered to be an income tax return pre-parer for purposes of § 7701(a)(36).

(5) If an Electronic Return Collector,Service Bureau, or Transmitter, or theproduct of a Software Developer, goes be-yond mechanical assistance, any of theseparties may be held liable for income taxreturn preparer penalties. See Rev. Rul.85–189, 1985–2 C.B. 341 (which de-scribes a situation where a Software De-veloper was determined to be an incometax return preparer and subject to certainpreparer penalties).

1997–52 I.R.B. 45 December 29, 1997

.03 Other Penalties.In addition to theabove specified provisions, the Servicereserves the right to assert all appropriatepreparer, nonpreparer, and disclosurepenalties against an Electronic Filer aswarranted under the circumstances.

SECTION 7. FORM 8453, U.S. INDIVIDUAL INCOME TAX DECLARATION FOR ELECTRONICFILING

.01 Procedures for Completing Form8453.

(1) Form 8453 must be completed inaccordance with the instructions for thatform.

(2) The taxpayer(s)’s name, address,social security number(s), tax return in-formation, and direct deposit of refundinformation in the electronic transmis-sion must be identical to the informationon the Form 8453 that the taxpayer(s)signed and provided for submission tothe Service.

(3) An Electronic Filer, a financial in-stitution, or any other entity associatedwith the electronic filing of a taxpayer’sreturn must not put its address in the sec-tion reserved for the taxpayer’s addresson Form 8453 or anywhere in the elec-tronic portion of a return.

(4) Before the electronic portion of thereturn is transmitted, the taxpayer mustverify the information on the electronicportion of the return and on Form 8453,and must sign Form 8453. Both spouses’signatures are required on the Form 8453prior to the electronic transmission of ajoint tax return. The taxpayer may verifythe information on the electronic portionof the return by viewing this informationon a computer display terminal. A tax-payer need not verify the electronic por-tion of the return prior to its transmissionif the taxpayer provided a completedpaper return for filing and the informa-tion on the electronic portion is identicalto the information provided by the tax-payer.

(5) An Electronic Filer must submit thetaxpayer’s Form 8453 to the appropriateservice center within one work day afterthe Electronic Filer receives acknowledg-ment that the electronic portion of the tax-payer’s return has been accepted for pro-cessing.

(6) If an Electronic Filer functions asan ERO, the Electronic Filer must signthe ERO’s Declaration on Form 8453.

(7) If the ERO is also the paid preparer,the ERO must check the “Paid Preparer”box and sign the ERO Declaration onForm 8453.

.02 Corrections to Form 8453.(1) A new Form 8453 is not required

for a nonsubstantive change. A nonsub-stantive change is limited to a correctionthat does not exceed the tolerances, de-scribed in section 7.02(2) of this revenueprocedure for arithmetic errors, a transpo-sition error, a misplaced entry, or aspelling error. The incorrect nonsubstan-tive information must be neatly linedthrough on the Form 8453 and the correctdata entered next to the lined-throughentry. Also, the individual making thecorrection must initial the correction.

(2) The tolerances for section 7.02(1)of this revenue procedure are:

(a) the amount of “Total income” doesnot differ from the amount on the elec-tronic tax return by more than $25; or

(b) the amount of “Total tax”, “Federalincome tax withheld”, “Refund”, or“Amount you owe” does not differ fromthe amount on the electronic portion ofthe tax return by more than $7.

(3) If the ERO makes a substantivechange to the electronic portion of the re-turn after Form 8453 has been signed bythe taxpayer, but before it is transmitted,the ERO must have all the necessary par-ties described above sign a new Form8453 that reflects the corrections beforethe return is transmitted.

(4) Dropping cents or rounding towhole dollars does not constitute a sub-stantive change or alteration to the returnunless the amount differs by more than theabove tolerances. All rounding should beaccomplished in accordance with the in-structions in the Form 1040 tax package.

.03 Missing Form 8453. If the Servicedetermines that a Form 8453 is missing,the ERO must provide the Service with areplacement. The ERO must also providea copy of the Form(s) W–2, W–2G,1099R, and all other attachments to Form8453.

.04 Substitute Form 8453. If a substi-tute Form 8453 is used, it must be ap-proved by the Service prior to use. SeeRev. Proc. 96–48, 1996-–2 C.B. 339.

SECTION 8. INFORMATION ANELECTRONIC FILER MUSTPROVIDE TO THE TAXPAYER

.01 The ERO must furnish the tax-payer with a complete paper copy of thetaxpayer’s return. However, the copyneed not contain the social security num-ber of the paid preparer. See Rev. Rul.78–317, 1978–2 C.B. 335. A completecopy of a taxpayer’s return includes:

(1) Form 8453 and other paper docu-ments that cannot be electronically trans-mitted; and

(2) a printout of the electronic portionof the return. See section 2.02 of this rev-enue procedure. The electronic portion ofthe return can be contained on a replica ofan official form or on an unofficial form.However, on an unofficial form, data en-tries must be referenced to the line num-bers on an official form. Also, a printoutof the electronic portion of the return doesnot have to be provided to the taxpayer ifthe taxpayer provided a completed paperreturn for electronic filing and the infor-mation on the electronic portion of the re-turn is identical to the information pro-vided by the taxpayer.

.02 The ERO must advise the taxpayerto retain a complete copy of the return andany supporting material.

.03 The ERO must advise the taxpayerthat an amended return, if needed, mustbe filed as a paper return and mailed tothe service center that would handle thetaxpayer’s paper return.

.04 The ERO must, upon request, pro-vide the taxpayer with the DeclarationControl Number and the date the Servicegave notification that the electronic por-tion of the taxpayer’s return was acceptedfor processing.

.05 The ERO must advise taxpayersthat they can call the local IRS TeleTaxnumber to inquire about the status of theirtax refund. The ERO should also advisetaxpayers to wait at least three weeksfrom the date the Service accepted theelectronic portion of the taxpayer’s returnfor processing before calling the TeleTaxnumber.

.06 If a taxpayer chooses to use an ad-dress other than his or her home addresson the return, the Electronic Filer must in-form the taxpayer that the address on theelectronic portion of the return, once

December 29, 1997 46 1997–52 I.R.B.

processed by the Service, will be used toupdate the taxpayer’s address of record.The Internal Revenue Service uses thetaxpayer’s address of record for variousnotices that are required to be sent to ataxpayer’s “last known address” under theInternal Revenue Code, and for refunds ofoverpayments of tax (unless otherwisespecifically directed by the taxpayer, suchas by Direct Deposit).

SECTION 9. DIRECTDEPOSITOFREFUNDS

.01 The Service will ordinarily processa request for Direct Deposit but reservesthe right to issue a paper refund check.

.02 The Service does not guarantee aspecific date by which a refund will be di-rectly deposited into the taxpayer’s finan-cial institution account.

.03 Neither the Service nor FinancialManagement Service (FMS) is responsi-ble for the misapplication of a Direct De-posit that is caused by error, negligence,or malfeasance on the part of the tax-payer, Electronic Filer, financial institu-tion, or any of their agents.

.04 An ERO must:(1) advise taxpayers of the option to re-

ceive their refund by paper check or directdeposit;

(2) not charge a separate fee for a Di-rect Deposit;

(3) accept any Direct Deposit electionto any eligible

financial institution designated by thetaxpayer;

(4) ensure that the taxpayer is eligibleto choose Direct Deposit;

(5) verify that the taxpayer has enteredthe Direct Deposit information requestedon Part II of Form 8453 correctly and thatthe information entered is the informationtransmitted with the electronic portion ofthe return;

(6) caution the taxpayer that once anelectronic

return has been accepted for processingby the Service:

(a) the Direct Deposit election cannotbe rescinded;

(b) the Routing Transit Number (RTN)of the financial institution cannot bechanged; and

(c) the taxpayer’s account number can-not be changed; and

(7) advise the taxpayer that refund in-formation is available by calling the local

IRS TeleTax number. See section 8.05 ofthis revenue procedure.

SECTION 10. REFUND ANTICIPATION LOANS

.01 A Refund Anticipation Loan(RAL) is money borrowed by a taxpayerthat is based on a taxpayer’s anticipatedincome tax refund. The Service has noinvolvement in RALs. A RAL is a con-tract between the taxpayer and the lender.

.02 Any entity that is involved in theForm 1040 ELF Program, including a fi-nancial institution that accepts direct de-posits of income tax refunds, has anobligation to every taxpayer who appliesfor a RAL to clearly explain to the tax-payer that a RALis in fact a loan, and nota substitute for or a quicker way of receiv-ing an income tax refund. An ElectronicFiler must advise the taxpayer that if a Di-rect Deposit is not timely, the taxpayermay be liable to the lender for additionalinterest on the RAL.

.03 An Electronic Filer may assist ataxpayer in applying for a RAL.

.04 An Electronic Filer may charge aflat fee to assist a taxpayer in applying fora RAL. The fee must be identical for allof the Electronic Filer’s customers andmust not be related to the amount of therefund or a RAL. The Electronic Filermust not accept a fee from a financial in-stitution for any service connected with aRAL that is contingent upon the amountof the refund or a RAL.

.05 The Service has no responsibilityfor the payment of any fees associatedwith the preparation of a return, the elec-tronic transmission of a return, or a RAL.

.06 An Electronic Filer may disclosetax information to the lending financialinstitution in connection with an applica-tion for a RAL only with the taxpayer’swritten consent as specified in § 301.7216–3(b).

.07 An Electronic Filer that is also thereturn preparer, and the financial institu-tion or other lender that makes an RAL,may not be related taxpayers within themeaning of § 267 or § 707.

.08 Section 6695(f) imposes a $500penalty on a return preparer who endorsesor negotiates a refund check issued to anytaxpayer other than the return preparer.However, a bank, as defined in § 581,may accept the full amount of a refundcheck as a deposit in the taxpayer’s ac-

count for the benefit of the taxpayer. Sec-tion 1.6695–1(f) clarifies § 6695(f) by ex-plaining that the prohibition on a returnpreparer negotiating a refund check islimited to a refund check for a return thatthe return preparer prepared. A preparerthat is also a financial institution, but hasnot made a loan to the taxpayer on thebasis of the taxpayer’s anticipated refund,may (1) cash a refund check and remit allof the cash to the taxpayer or accept a re-fund check for deposit in full to a tax-payer’s account, provided the bank doesnot initially endorse or negotiate thecheck; or (2) endorse a refund check fordeposit in full to a taxpayer’s account pur-suant to a written authorization of the tax-payer. A preparer bank may also subse-quently endorse or negotiate a refundcheck as part of the check-clearingprocess through the financial system afterinitial endorsement. Any income tax re-turn preparer that violates this provisionmay be suspended from the Form 1040ELF Program.

SECTION 11. BALANCE DUE RETURNS

.01 All service centers that acceptelectronically filed

returns will accept electronically filedbalance due returns.

.02 The Electronic Filer must furnishForm 1040-V, Payment Voucher, to a tax-payer who electronically files a balancedue return.

.03 To expedite the crediting of a taxpayment, a taxpayer who electronicallyfiles a balance due return should mail hisor her tax payment with either Form1040-V or the scannable paymentvoucher that is included in some tax pack-ages. Each of these options has specificmailing instructions.

.04 A taxpayer who electronically filesa balance due return must make a full andtimely payment of any tax that is due.Failure to make full payment of any taxthat is due on or before April 15, 1998,will result in the imposition of interest andmay result in the imposition of penalties.

SECTION 12. ADVERTISING STANDARDS FOR ELECTRONIC FILERS AND FINANCIALINSTITUTIONS

.01 An Electronic Filer shall complywith the advertising and solicitation provi-

1997–52 I.R.B. 47 December 29, 1997

sions of 31 C.F.R. Part 10 (Treasury De-partment Circular No. 230). This circularprohibits the use or participation in the useof any form of public communication con-taining a false, fraudulent, misleading, de-ceptive, unduly influencing, coercive, orunfair statement or claim. Any claims con-cerning faster refunds by virtue of elec-tronic filing must be consistent with thelanguage in official Service publications.

.02 An Electronic Filer must adhere toall relevant federal, state, and local con-sumer protection laws that relate to adver-tising and soliciting.

.03 An Electronic Filer must not usethe Service’s name, “Internal RevenueService” or “IRS”, within a firm’s name.

.04 An Electronic Filer must not useimproper or misleading advertising in re-lation to the Form 1040 ELF Program (in-cluding the time frames for refunds andRALs).

.05 An Electronic Filer using elec-tronic filing promotional materials orlogos provided by the Service must com-ply with all Service instructions pertain-ing to the promotional materials or logos.

.06 Use of Direct Deposit name andlogo.

(1) The name “Direct Deposit” will beused with initial capital letters or all capi-tal letters.

(2) The logo/graphic for Direct Depositwill be used whenever feasible in adver-tising copy.

(3) The color or size of the Direct De-posit logo/graphic may be changed whenused in advertising pieces.

.07 Advertising materials shall not carrythe FMS, IRS, or other Treasury Seals.

.08 Advertising for a cooperative elec-tronic return filing project (public/privatesector) must clearly state the names of allcooperating parties.

.09 In advertising the availability of aRAL, an Electronic Filer and a financialinstitution must clearly (and, if applica-ble, in easily readable print) refer to or de-scribe the funds being advanced as a loan,not a refund; that is, it must be made clearin the advertising that the taxpayer is bor-rowing against the anticipated refund andnot obtaining the refund itself from the fi-nancial institution.

.10 If an Electronic Filer uses radio ortelevision broadcasting to advertise, thebroadcast must be pre-recorded. TheElectronic Filer must keep a copy of the

pre-recorded advertisement for a periodof at least 36 months from the date of thelast transmission or use.

.11 If an Electronic Filer uses directmail or fax communications to advertise,the Electronic Filer must retain a copy ofthe actual mailing or fax, along with a listor other description of the firms, organi-zations, or individuals to whom the com-munication was mailed, faxed, or other-wise distributed for a period of at least 36months from the date of the last mailing,fax, or distribution.

.12 Acceptance to participate in theForm 1040 ELF Program does not implyendorsement by the Service, FMS, or theTreasury Department of the software orquality of services provided.

SECTION 13. MONITORING ANDSUSPENSION OF AN ELECTRONICFILER

.01 The Service will monitor an Elec-tronic Filer for conformity with this rev-enue procedure. Before suspending anElectronic Filer, the Service may issue awarning letter that describes specific cor-rective action for deviations from this rev-enue procedure. However, the Servicecan immediately suspend, without notice,an Electronic Filer from the Form 1040ELF Program. In most circumstances, asuspension from participation in the Form1040 ELF Program is effective as of thedate of the letter informing the ElectronicFiler of the suspension.

.02 If a Principal or Responsible Offi -cial is suspended from the Form 1040 ELFProgram, every entity that listed the sus-pended Principal or Responsible Officialon its Form 8633 may also be suspended.

.03 The Service will monitor thetimely receipt of Forms 8453, as well astheir overall legibility.

.04 The Service will monitor the qual-ity of an Electronic Filer’s transmissionsthroughout the filing season. The Servicewill also monitor the electronic portion ofreturns and tabulate rejections, errors, andother defects. If quality deteriorates, theElectronic Filer will receive a warningfrom the Service.

.05 The Service will monitor Drop-OffCollection Points and advise a parent ofany Form 1040 ELF Program violationsthe Service has encountered with a par-ent’s Drop-Off Collection Point. If a par-ent fails to correct a Drop-Off Collection

Point problem, the parent will be requiredto eliminate that Drop-Off CollectionPoint. Failure to take corrective action oreliminate a Drop-Off Collection Pointmay cause the Service to suspend the par-ent from participating in the Form 1040ELF Program.

.06 The Service will monitor com-plaints about an Electronic Filer and issuea warning or suspension letter as appro-priate.

.07 The Service reserves the right tosuspend an Electronic Filer from partici-pation in the Form 1040 ELF Program forviolating any provision of this revenueprocedure. Generally, the Service will ad-vise a suspended Electronic Filer con-cerning the requirements for reacceptanceinto the Form 1040 ELF Program. Thefollowing reasons may lead to a warningletter and/or suspension of an ElectronicFiler from the Form 1040 ELF Program(this list is not all-inclusive):

(1) the reasons listed in section 4.19 ofthis revenue procedure;

(2) deterioration in the format of indi-vidual transmissions;

(3) unacceptable cumulative error orrejection rate;

(4) untimely received, illegible, incom-plete, missing, or unapproved substituteForms 8453;

(5) stockpiling returns at any timewhile participating in the Form 1040 ELFProgram;

(6) failure on the part of a Transmitter toretrieve acknowledgement files within twowork days of transmission by the Service;

(7) failure on the part of a Transmitterto provide an ERO or Service Bureauwith acknowledgement files within twowork days after receipt from the Service;

(8) significant complaints about anElectronic Filer’s performance in theForm 1040 ELF Program;

(9) failure on the part of an ElectronicFiler to ensure against the unauthorizeduse of its EFIN and/or ETIN;

(10) having more than one EFIN forthe same business entity at the same loca-tion (the business entity is generally theentity that reports on its return the incomederived from electronic filing), unless theService has issued more than one EFIN toa business entity at the same location. Forexample, the Service may issue more thanone EFIN to accommodate high volumesof returns;

December 29, 1997 48 1997–52 I.R.B.

(11) failure on the part of a Transmitterto include a Service Bureau’s SBIN in thetransmission of a return submitted by aService Bureau;

(12) failure on the part of an ERO to in-clude a Drop-Off Collection Point’s CPINas part of a return collected from a Drop-Off Collection Point;

(13) failure on the part of an ElectronicFiler to cooperate with the Service’s ef-forts to monitor Electronic Filers and in-vestigate electronic filing abuse;

(14) failure on the part of an ElectronicFiler to properly use the standard/non-standard W–2 indicator;

(15) failure on the part of an ElectronicFiler to properly use the refund anticipa-tion loan (RAL) indicator;

(16) failure on the part of a Service Bu-reau or a Transmitter to include the ERO’sEFIN as part of a return that the ERO sub-mits to the Service Bureau or the Trans-mitter;

(17) violation of the advertising stan-dards described in section 12 of this rev-enue procedure;

(18) failure to maintain and make avail-able records as described in section5.09(4) of this revenue procedure;

(19) accepting a tax return for elec-tronic filing either directly or indirectlyfrom a firm, organization, or individual(other than the taxpayer who is submittinghis or her return) that is not in the Form1040 ELF Program;

(20) submitting the electronic portionof a return with information that is notidentical to the information on Form8453; or

(21) failure to timely submit a revisedForm 8633 (or a letter containing thesame information contained in a revisedForm 8633) notifying the Service ofchanges described in section 4.03 or 4.04of this revenue procedure.

.08 The Service may list in the InternalRevenue Bulletin, district office listings,district office newsletters, and the EFSBulletin Board the name and owner(s) ofany entity suspended from the Form 1040ELF Program and the effective date of thesuspension.

.09 A district director may warn Elec-tronic Filers who are using the servicesof a rejected or a suspended ElectronicFiler that sections 4.19(11) and (12) ofthis revenue procedure prohibit a busi-

ness relationship with a rejected or a sus-pended Electronic Filer. However, in ap-propriate circumstances, the Service mayimmediately suspend the ElectronicFiler.

.10 If an Electronic Filer is suspendedfrom participating in the Form 1040 ELFProgram, the period of suspension in-cludes the remainder of the calendar yearin which the suspension occurs plus thenext two calendar years. A suspendedparticipant may submit a new applicationfor the application period immediatelypreceding the end of the suspension.

SECTION 14. ADMINISTRATIVE REVIEW PROCESS FOR DENIALOFPARTICIPATION IN THE FORM 1040ELECTRONIC FILING PROGRAM

.01 An applicant that has been deniedparticipation in the Form 1040 ELF Pro-gram has the right to an administrative re-view. During the administrative reviewprocess, the denial of participation re-mains in effect.

.02 In response to the submission of aForm 8633, the Andover Service Centerwill either (1) accept an applicant intothe Form 1040 ELF Program, or (2)issue a proposed letter of denial that ex-plains to the applicant why the servicecenter proposes to reject the applicationto participate in the Form 1040 ELF Pro-gram.

.03 An applicant that receives a pro-posed letter of denial may mail or deliver,within 30 calendar days of the date of theproposed letter of denial, a written re-sponse to the Andover Service Center.The applicant’s response must address theservice center’s reason(s) for proposingthe denial to participate.

.04 Upon receipt of an applicant’swritten response, the Andover ServiceCenter will reconsider its proposed letterof denial. The service center may either(1) withdraw its proposed letter of denialand admit the applicant into the Form1040 ELF Program, or (2) finalize theproposed denial letter.

.05 If an applicant receives a final de-nial letter from the Andover Service Cen-ter, the applicant is entitled to an appeal,in writing, to the Director of Practice.

.06 The appeal must be mailed or de-livered to the Andover Service Centerwithin 30 calendar days of the date of the

final denial letter. An applicant’s writtenappeal must contain a detailed explana-tion, with supporting documentation, ofwhy the denial should be reversed.

.07 The Andover Service Center will,upon receipt of a written appeal to the Di-rector of Practice, forward to the Directorof Practice its file on the applicant and thematerial described in section 14.06 of thisrevenue procedure. The service centerwill forward these materials to the Direc-tor of Practice within 15 calendar days ofreceipt of the applicant’s written appeal.

.08 Failure to respond within either ofthe 30-day periods described in sections14.03 and 14.06 of this revenue procedureirrevocably terminates an applicant’s rightto an administrative review or appeal.

.09 If an application for participationin the Form 1040 ELF Program is denied,the applicant is ineligible to submit a newapplication for two years from the appli-cation date of the denied application.

SECTION 15. ADMINISTRATIVE REVIEW PROCESS FOR SUSPENSION FROM THE FORM 1040ELECTRONIC FILING PROGRAM

.01 An Electronic Filer that has beensuspended from participation in the Form1040 ELF Program has the right to an ad-ministrative review. During the adminis-trative review process, the suspension re-mains in effect.

.02 If an Electronic Filer receives asuspension letter, the Electronic Filer maymail or deliver, within 30 calendar days ofthe date of the suspension letter, a detailedwritten explanation, with supporting doc-umentation, of why the suspension lettershould be withdrawn. This written re-sponse should be sent to the district officeor service center that issued the suspen-sion letter.

.03 Upon receipt of the ElectronicFiler’s written response, the district officeor service center will reconsider its sus-pension of the Electronic Filer. The dis-trict office or service center may either (1)withdraw its suspension letter, or (2) af-firm the suspension.

.04 If an Electronic Filer receives a let-ter affirming the suspension, the Elec-tronic Filer is entitled to an appeal, inwriting, to the Director of Practice.

.05 The appeal must be mailed or de-livered to the district office or service

1997–52 I.R.B. 49 December 29, 1997

center that issued the suspension letterwithin 30 calendar days of the date of theletter affirming the suspension. The Elec-tronic Filer’s written appeal must containdetailed reasons, with supporting docu-mentation, for reversal of the suspension.

.06 The district office or service centerwhose decision to suspend is being ap-pealed will, upon receipt of a written ap-peal to the Director of Practice, forward itsfile on the Electronic Filer to the Directorof Practice. The district office or servicecenter will also forward to the Director ofPractice the material described in section15.05 of this revenue procedure. The dis-trict office or the service center will for-ward these materials within 15 calendardays of the receipt of the Electronic Filer’swritten request for appeal.

.07 Failure to appeal within either ofthe 30-day periods described in sections15.02 and 15.05 of this revenue procedureirrevocably terminates an ElectronicFiler’s right to an appeal.

SECTION 16. VITA AND TCE SPONSORED ELECTRONIC FILING

.01 This revenue procedure applies toVITA (Volunteer Income Tax Assistance)and TCE (Tax Counseling for the Elderly)sponsors subject to the exceptions and re-strictions described in this section.

.02 For purposes of this section, theDistrict Director may be represented byan individual designated by the DistrictDirector such as a District Office Elec-tronic Filing Coordinator (DOEFC) or aTaxpayer Education Coordinator.

.03 To be accepted in, or to continueparticipation in, the Form 1040 ELF Pro-gram, a VITA or TCE sponsor must:

(1) have obtained the District Direc-tor’s permission (and, in the case of aTCE sponsor, the permission of the Ser-vice office that is funding the TCE pro-gram) to provide electronic filing; and

(2) have a manual or electronic qualityreview system for each return to be elec-tronically filed.

.04 The District Director will advisethe VITA and TCE sponsor how to submitor transmit returns. Some of the optionsavailable to the District Director are:

(1) having the VITA or TCE sponsorsubmit returns on paper, magnetic disk,or in an electronic transmission to the

DOEFC or other locally designated office;

(2) having the VITA or TCE sponsordirectly transmit returns to the appropriateservice center; or

(3) having the VITA or TCE sponsoruse a third party Transmitter.

.05 A VITA or TCE sponsor is not re-quired to sign Form 8453 as ERO. How-ever, if the VITA or TCE sponsor choosesnot to sign Form 8453, the VITA or TCEsponsor must otherwise furnish on Form8453 its VITA or TCE acronym and, ifoperating from multiple sites, a site desig-nation number.

.06 A VITA or TCE sponsor can onlyaccept a return for electronic filing that is(1) prepared at the VITA or TCE site by aVITA or TCE volunteer, (2) prepared by ataxpayer that meets the criteria for VITAor TCE assistance, or (3) prepared by apaid preparer that meets the criteria forVITA or TCE assistance.

.07 Only returns and accompanyingforms and schedules included in a district,VITA, or TCE training course may be ac-cepted for electronic filing by a VITA orTCE sponsor.

.08 A VITA or TCE sponsor and a Dis-trict Director may enter into an agreementthat provides for the retention of copies oftax returns and Forms 8453 by a DistrictDirector. This information must be re-tained by either the VITA or TCE sponsoror a District Director. This informationmust not be given to a third party, includ-ing a third party Transmitter.

.09 A District Director is responsible forensuring that Form 8453 is sent to the ap-propriate district office or service center.However, a District Director may delegateto the VITA or TCE sponsor the responsi-bility for mailing Form 8453 to the appro-priate district office or service center.

.10 A VITA or TCE sponsor may col-lect a fee only if it is directly related to de-fraying the actual cost of electronicallytransmitting a tax return. A VITA or TCEsponsor may also collect this fee on behalfof a third party Transmitter who electroni-cally transmitted a VITA or TCE return.

.11 Before a VITA or TCE sponsor maycollect a fee for electronically filing a taxreturn, the VITA or TCE sponsor must en-sure that the taxpayer understands that:

(1) the fee is not for the preparation ofthe return; and

(2) the VITA or TCE service is offeredwithout regard to either the electronicfiling of a return or the collection of afee.

SECTION 17. EMPLOYER SPONSORED ELECTRONIC FILING

.01 This revenue procedure applies toan employer who chooses to offer elec-tronic filing as an employee benefit to (1)business owners and spouses, (2) employ-ees and spouses, and/or (3) dependents ofbusiness owners and employees, subjectto the exceptions and restrictions de-scribed in this section.

.02 For purposes of this section, theDistrict Director may be represented byan individual designated by the DistrictDirector.

.03 An employer may choose to elec-tronically transmit returns or may arrangeto have tax returns electronically trans-mitted through a third party. If an em-ployer chooses to transmit returns frommore than one location, the employermust submit a properly completed Form8633 for each location.

.04 An employer may offer electronicfiling as an employee benefit whether theemployer chooses to transmit tax returnsor contracts with a third party to transmitthe tax returns.

.05 If an employer contracts with athird party to transmit tax returns, the em-ployer may collect from participating em-ployees a fee that is directly related to de-fraying the actual cost of electronicallytransmitting a tax return.

.06 An employer is not required to signForm 8453 as ERO. However, if the em-ployer chooses not to sign Form 8453, theemployer must otherwise furnish on Form8453 its name, address, and the designa-tion “Employee Benefit,” and if operatingfrom multiple sites, a site designationnumber.

.07 An employer and a District Direc-tor may enter into an agreement that pro-vides for the retention of copies of tax re-turns including Forms 8453. In theabsence of such an agreement, this infor-mation must be retained by the employer.This information is not to be given to athird party, including a third party Trans-mitter.

December 29, 1997 50 1997–52 I.R.B.

SECTION 18. EFFECTON OTHERDOCUMENTS

Rev. Proc. 96–61, 1996–2 C.B. 401, issuperseded.


This revenue procedure is effective De-cember 29, 1997.

SECTION 20. INTERNALREVENUESERVICE OFFICE CONTACT

All questions regarding this revenueprocedure should be directed to the Inter-nal Revenue Service. The telephonenumber for this purpose is (202) 283-0531 (not a toll-free number).

SECTION 21. PAPERWORK REDUCTION ACT

The collections of information con-tained in this revenue procedure havebeen reviewed and approved by the Of-fice of Management and Budget in accor-dance with the Paperwork Reduction Act(44 U.S.C. 3507) under control number1545–1512.

An agency may not conduct or sponsor,and a person is not required to respond to,a collection of information unless the col-lection of information displays a validcontrol number.

The collections of information in thisrevenue procedure are in sections 5, 8, 9,and 12. This information is required toimplement the Form 1040 ELF Programand to enable taxpayers to file their indi-vidual income tax returns electronically.The information will be used to ensurethat taxpayers receive accurate and essen-tial information regarding the filing oftheir electronic returns and to identify thepersons involved in the filing of elec-tronic returns. The collections of infor-mation are required to retain the benefit ofparticipating in the Form 1040 ELF Pro-gram. The likely respondents are busi-ness or other for-profit institutions.

The estimated total annual reportingand recordkeeping burden is 1,146,272hours.

The estimated annual burden per re-spondent/recordkeeper varies from six (6)minutes to 15.5 hours, depending on indi-vidual circumstances, with an estimatedaverage of 15.28 hours (or approximatelysix (6) minutes per electronically filed re-turn). The estimated number of respon-

dents and recordkeepers is 75,000. The estimated annual frequency of re-

sponses is on occasion. Books or records relating to a collec-

tion of information must be retained aslong as their contents may become mater-ial in the administration of any internalrevenue law. Generally, tax returns andtax return information are confidential, asrequired by 26 U.S.C. § 6103.

26 CFR 601.602: Tax forms and instructions.(Also Part I, sections 6012, 6061; 1.6012-5,1.6061–1)

Rev. Proc. 97–61

CONTENTS

SECTION 1 PURPOSESECTION 2 BACKGROUND AND

CHANGES SECTION 3 ON-LINE FILING PAR-

TICIPANTS—DEFINI-TIONS

SECTION 4 ACCEPTANCE IN THEFORM 1040 ON-LINEFILING PROGRAM

SECTION 5 RESPONSIBILITIES OFAN ON-LINE FILER

SECTION 6 PENALTIESSECTION 7 FORM 8453–OL, U.S.

INDIVIDUAL TAX DE-CLARATION FOR ON-LINE FILING

SECTION 8 INFORMATION AN ON-LINE FILER MUSTPROVIDE TO THE TAX-PAYER

SECTION 9 DIRECT DEPOSITOFREFUNDS

SECTION 10 BALANCE DUE RE-TURNS

SECTION 11 ADVERTISING STAN-DARDS FOR ON-LINEFILERS

SECTION 12 MONITORING ANDSUSPENSION OF ANON-LINE FILER

SECTION 13 ADMINISTRATIVE RE-VIEW PROCESS FORDENIAL OF PARTICI-PATION IN THE FORM1040 ON-LINE FILINGPROGRAM

SECTION 14 ADMINISTRATIVE RE-VIEW PROCESS FORSUSPENSION FROM

THE FORM 1040 ON-LINE FILING PRO-GRAM

SECTION 15 EFFECT ON OTHERDOCUMENTS

SECTION 16 EFFECTIVE DATESECTION 17 INTERNAL REVENUE

SERVICE OFFICECONTACT

SECTION 18 PAPERWORK REDUC-TION ACT

SECTION 1. PURPOSE

This revenue procedure informs thosewho participate in the Form 1040 On-Line Filing Program of their obligationsto the Internal Revenue Service, taxpay-ers, and other participants. The followingreturns can be filed under the Form 1040On-Line Filing Program: (1) 1997 Form1040 and 1997 Form 1040A, U.S. Indi-vidual Income Tax Return; and (2) 1997Form 1040EZ, Income Tax Return forSingle and Joint Filers With No Depen-dents. This revenue procedure updatesand supersedes Rev. Proc. 96–62, 1996-2C.B. 412.


.01 Section 1.6012–5 of the IncomeTax Regulations provides that the Com-missioner may authorize the use, at theoption of a person required to make a re-turn, of a composite return in lieu of anyform specified in 26 C.F.R. Part 1 (In-come Tax), subject to the conditions, limi-tations, and special rules governing thepreparation, execution, filing, and correc-tion thereof as the Commissioner maydeem appropriate.

.02 For purposes of this revenue proce-dure, an on-line electronically filed Form1040, Form 1040A, or Form 1040EZ is acomposite return consisting of electroni-cally transmitted data and certain paperdocuments. The paper portion of the re-turn consists of Form 8453–OL, U.S. In-dividual Income Tax Declaration for On-Line Filing, and other paper documentsthat cannot be electronically transmitted.Form 8453–OLmust be received by theService before the composite return isconsidered filed (see section 5.07 of thisrevenue procedure). The composite re-turn must contain the same informationthat a return filed completely on paper

1997–52 I.R.B. 51 December 29, 1997

contains. See section 7 of this revenueprocedure for procedures for completingForm 8453–OL.

.03 The Service will periodically issuePublication 1345, Handbook for Elec-tronic Filers of Individual Income TaxReturns, that lists the forms and schedulesassociated with the Form 1040 series thatcan be electronically transmitted.

.04 For the purposes of the Form 1040On-Line Filing Program, a 1997 Form1040, Form 1040A, or Form 1040EZ can-not be electronically filed after October15, 1998, notwithstanding the fact that thetaxpayer has been granted an extension tofile a return beyond that date.

.05 An amended tax return cannot beelectronically filed under the Form 1040On-Line Filing Program. A taxpayermust file an amended tax return on paperin accordance with the instructions forForm 1040X, Amended U.S. IndividualIncome Tax Return.

.06 A tax return that has a foreign ad-dress for the taxpayer cannot be electroni-cally filed under the Form 1040 On-LineFiling Program. Army/Air Force (APO)and Fleet (FPO) post offices are not con-sidered foreign addresses.

.07 A tax return for a decedent cannotbe electronically filed under the Form1040 On-Line Filing Program. The dece-dent’s spouse or personal representativemust file a paper tax return for the dece-dent.

.08 This revenue procedure updatesand supersedes Rev. Proc. 96–62, 1996–2C.B. 412. The updates include changes inthe Form 1040 On-Line Filing Program,clarification of prior Form 1040 On-LineFiling Program statements, and additionalguidance derived from other Service doc-uments that relate to the Form 1040 On-Line Filing Program. Some of the up-dates are:

(1) Unless certain changes listed in sec-tions 4.03 and 4.04 of this revenue proce-dure have occurred, an On-Line Filer thatactively participated in the most recentForm 1040 On-Line Filing Program doesnot have to reapply to participate in theForm 1040 On-Line Filing Program (sec-tion 4.01);

(2) the application period for the Form1040 On-Line Filing Program runs fromSeptember 2, 1997, through December 1,1997 (section 4.05);

(3) all applications for the Form 1040

On-Line Filing Program must be sent tothe Andover Service Center (sections 4.07and 5.05);

(4) Applicants and certain On-Line Fil-ers must submit information to the IRSHeadquarters Form 1040 On-Line FilingProgram Analyst by December 31, 1997(sections 4.08 and 4.09);

(5) an individual who is an attorneymay submit evidence of professional sta-tus in lieu of a fingerprint card providedthe individual is not currently under sus-pension or disbarment from practice be-fore the Service or the bar of the highestcourt of any State, Commonwealth, pos-session, territory, or the District of Co-lumbia (section 4.12(1));

(6) an individual who is a certifiedpublic accountant may submit evidenceof professional status in lieu of a finger-print card provided the individual is notcurrently under suspension or disbar-ment from practice before the Service, orwhose license to practice is not currentlysuspended or revoked by any State,Commonwealth, possession, territory, orthe District of Columbia (section4.12(2);

(7) timely notification that an On-LineFiler has discontinued participation in theForm 1040 On-Line Filing Program mustbe sent to the Andover Service Center(section 5.06);

(8) a Transmitter must ensure that itdoes not use an EFIN or ETIN obtainedthrough the Form 1040 Electronic Filing(ELF) Program in a transmission of theelectronic portion of a taxpayer’s returnas part of the Form 1040 On-Line FilingProgram (section 5.15); and

(9) the Andover Service Center is theoffice responsible for accepting or reject-ing an application to participate in theForm 1040 On-Line Filing Program (sec-tions 13.02 through 13.07).

SECTION 3. ON-LINE FILING PARTICIPANTS—DEFINITIONS

.01 After acceptance into the Form1040 On-Line Filing Program, as de-scribed in section 4 of this revenue proce-dure, a participant is referred to as an“On-Line Filer.”

.02 The On-Line Filer categories are:(1) ON-LINE SERVICE PROVIDER.

An “On-Line Service Provider” is an on-line information service organization thatprovides paying subscribers (individualswho use the various services offered by

an On-Line Service Provider) dial-up ac-cess to a variety of data bases. For pur-poses of the Form 1040 On-Line FilingProgram, an On-Line Service Providermust also have:

(a) an established subscriber or clientbase to whom the On-Line ServiceProvider offers services on a continuingbasis and about which the On-Line Ser-vice Provider maintains certain minimuminformation identifying the subscriber.Such information could include the sub-scriber’s name, account number, or creditcard or demand deposit account number;

(b) a port capacity of at least 1,000lines or the ability to simultaneously ser-vice 1,000 customers;

(c) a network of personal computersthat are linked by modems;

(d) access to a broad spectrum of infor-mation and/or entertainment services; and

(e) a client base that has the ability tocommunicate using electronic mail.

(2) SOFTWARE DEVELOPER. A“Software Developer” develops softwarefor the purposes of (a) formatting returnsaccording to the Service’s electronic re-turn specifications; and/or (b) transmit-ting electronic returns directly to the Ser-vice. A Software Developer may also sellits software.

(3) TRANSMITTER. A “Transmitter”transmits the electronic portion of a returndirectly to the Service. An entity that pro-vides a “bump-up” service is a Transmit-ter. A “bump-up” service provider in-creases the transmission rate or line speedof formatted or reformatted informationthat is being sent to the Service via a pub-lic switched telephone network. The Ser-vice accepts both asynchronous and bi-synchronous communications protocols.

.03 The On-Line Filer categories arenot mutually exclusive. For example, aSoftware Developer can, at the same time,be considered a Transmitter or an On-Line Service Provider depending on thefunction(s) performed.

SECTION 4. ACCEPTANCE IN THEFORM 1040 ON-LINE FILING PROGRAM

.01 Except as provided in sections 4.02through 4.04 of this revenue procedure,an On-Line Filer that has actively partici-pated in the most recent Form 1040 On-Line Filing Program does not have toreapply to participate in the Form 1040

December 29, 1997 52 1997–52 I.R.B.

On-Line Filing Program. However, anOn-Line Filer that intends to participateas a Transmitter or a Software Developerin the Form 1040 On-Line Filing Programmust first successfully complete the test-ing referred to in section 4.10 of this rev-enue procedure. In addition, section 4.13of this revenue procedure provides for theService’s issuance of credentials neces-sary for participation in the Form 1040On-Line Filing Program.

.02 Applicants must file a new Form8633, Application to Participate in theElectronic Filing Program, (hereinafter“Form 8633”), with completed fingerprintcards for the appropriate individuals, if:

(1) the applicant has never participatedin the Form 1040 On-Line Filing Pro-gram;

(2) the applicant has previously beendenied participation in the Form 1040 On-Line Filing Program; or

(3) the applicant has been suspendedfrom the Form 1040 On-Line Filing Pro-gram.Applicants must designate that the Form8633 is for the Form 1040 On-Line FilingProgram by putting the words “ON-LINEFILING PROGRAM” across the top ofthe form and the letters “OLF” in the boxin the upper left hand corner of the formthat indicates whether the form is new orrevised.

.03 To participate in the Form 1040On-Line Filing Program, an On-LineFiler in the most recent Form 1040 On-Line Filing Program must submit a re-vised Form 8633 (designated for the Form1040 On-Line Filing Program as de-scribed in section 4.02 of this revenueprocedure), signed by all “Principals” andthe “Responsible Official” (as describedin section 4.11 of this revenue procedure)with completed fingerprint cards for theappropriate individuals if:

(1) the On-Line Filer functioned solelyas a Software Developer during the mostrecent Form 1040 On-Line Filing Pro-gram and intends to function as an On-Line Service Provider or Transmitter dur-ing the Form 1040 On-Line FilingProgram;

(2) there is an additional Principal, suchas a partner or a corporate officer, thatmust be listed on Form 8633, line 8, “Prin-cipals of Your Firm or Organization”;

(3) there is a Principal listed on Form8633, line 8, that should be deleted; or

(4) the Responsible Official on Form8633, line 9 changes.

.04 Except as provided in section 4.03of this revenue procedure, to participate inthe Form 1040 On-Line Filing Program,an On-Line Filer in the most recent Form1040 On-Line Filing Program must sub-mit either a revised Form 8633, or a lettercontaining the same information con-tained in a revised Form 8633, if any in-formation on the On-Line Filer’s Form8633 has changed. A revised Form 8633or letter submitted under this sectionshould include only the information re-quested on lines 1a through 1i of Form8633 and the information being revised. APrincipal or a Responsible Official mustsign the revised Form 8633 or the letter.

.05 For applicants described in section4.02 of this revenue procedure, the appli-cation period runs from September 2,1997, through December 1, 1997.

.06 Revised applications described insections 4.03 and 4.04 of this revenueprocedure must be submitted within 30days of the change(s) reflected on the re-vised Form 8633 or in the letter.

.07 Applicants and On-Line Filers de-scribed in sections 4.02 through 4.04 ofthis revenue procedure must file Form8633 (or a letter as provided in section4.04 of this revenue procedure) with theAndover Service Center.

.08 Applicants described in section4.02 must submit the following informa-tion (or the name and phone number of anindividual who can provide the informa-tion) to the IRS Headquarters Form 1040On-Line Filing Program Analyst (see sec-tion 17 of this revenue procedure) by De-cember 31, 1997:

(1) the brand name of the software theapplicant will be using, has developed, orwill be transmitting, and the following in-formation regarding the software:

(a) the name of the Software Developerfor the software;

(b) the name of the Transmitter for thesoftware;

(c) the retail cost of the software andany additional costs for transmitting theelectronic portion of the taxpayer’s re-turn;

(d) whether the software can be used tofile Federal/State returns;

(e) whether the software is available onthe Internet and, if so, the Internet ad-dress;

(f) the Professional Package name of thesoftware submitted for Participants Accep-tance Testing (PATS) and whether the soft-ware has successfully completed PATS;

(2) the applicant’s point of contact formatters relating to the Form 1040 On-Line Filing Program and the telephonenumber for the point of contact; and

(3) the applicant’s customer servicetelephone number.

.09 On-Line Filers that participated inthe most recent Form 1040 On-Line Fil-ing Program must submit any changes tothe information contained in sections4.08(1) through (3) of this revenue proce-dure to the IRS Headquarters Form 1040On-Line Filing Program Analyst by De-cember 31, 1997.

.10 Applicants and On-Line Filers de-scribed in sections 4.01 through 4.04 ofthis revenue procedure that intend to par-ticipate as a Transmitter or a Software De-veloper in the Form 1040 On-Line FilingProgram must first successfully completethe necessary testing at the appropriateservice center(s).

.11 Each individual listed as a Princi-pal or a Responsible Official must:

(1) be a United States citizen or analien lawfully admitted for permanent res-idence as described in 8 U.S.C. § 1101(a)-(20) (1994);

(2) have attained the age of 21 as of thedate of application;

(3) submit with Form 8633 one stan-dard fingerprint card with a full set of fin-gerprints taken by a law enforcementagency, except as provided in section 4.12of this revenue procedure; and

(4) pass a suitability check that in-cludes a credit check, a tax compliancecheck, and a fingerprint check.

.12 An individual may choose to sub-mit evidence of the individual’s profes-sional status in lieu of a standard finger-print card if the individual is:

(1) an attorney in good standing of thebar of the highest court of any State,Commonwealth, possession, territory, orthe District of Columbia, and is not cur-rently under suspension or disbarmentfrom practice before the Service or the barof the highest court of any State, Com-monwealth, possession, territory, or theDistrict of Columbia;

(2) a certified public accountant who isduly qualified to practice as a certifiedpublic accountant in any State, Common-

1997–52 I.R.B. 53 December 29, 1997

wealth, possession, territory, or the Dis-trict of Columbia, and is not currentlyunder suspension or disbarment frompractice before the Service or whose li-cense to practice is not currently sus-pended or revoked by any State, Com-monwealth, possession, territory, or theDistrict of Columbia;

(3) an enrolled agent pursuant to part10 of 31 C.F.R. Subtitle A;

(4) an officer of a publicly held corpo-ration; or

(5) a banking official who is bondedand has been fingerprinted within the lasttwo years.

.13 The Service will issue credentialsto eligible applicants for the Form 1040On-Line Filing Program, as well as On-Line Filers that do not have to reapplypursuant to section 4.01, 4.03, or 4.04 ofthis revenue procedure (provided theyhave first satisfactorily completed thetesting described in section 4.10 of thisrevenue procedure if they intend to partic-ipate as a Transmitter or Software Devel-oper). No one may participate in theForm 1040 On-Line Filing Program with-out the following credentials:

(1) a letter of acceptance into the Form1040 On-Line Filing Program;

(2) an Electronic Filing IdentificationNumber (EFIN) for each applicable ser-vice center; and

(3) if appropriate, an Electronic Trans-mitter Identification Number (ETIN) foreach applicable service center.

.14 If an On-Line Filer is a SoftwareDeveloper that performs no other functionin the Form 1040 On-Line Filing Programbut software development, no Principal orResponsible Official needs to pass a suit-ability check.

.15 The Service may reject an applica-tion to participate in the Form 1040 On-Line Filing Program for the followingreasons (this list is not all-inclusive).These reason apply to any firm, organiza-tion, Principal, or Responsible Officiallisted on Form 8633:

(1) conviction of any criminal offenseunder the revenue laws of the UnitedStates, or of any offense involving dis-honesty or breach of trust;

(2) failure to file timely and accuratetax returns, including returns indicatingthat no tax is due;

(3) failure to timely pay any tax liabili-ties;

(4) assessment of tax penalties;(5) suspension/disbarment from prac-

tice before the Service;(6) disreputable conduct or other facts

that would reflect adversely on the Form1040 On-Line Filing Program;

(7) misrepresentation on an application;(8) suspension or rejection from either

the Form 1040 On-Line Filing Program orthe Form 1040 Electronic Filing (ELF)Program in a prior year;

(9) unethical practices in return prepa-ration;

(10) stockpiling returns prior to officialacceptance into the Form 1040 On-LineFiling Program (see section 5.21 of thisrevenue procedure);

(11) knowingly and directly or indi-rectly employing or accepting assistancefrom any firm, organization, or individualthat is prohibited from applying to partici-pate in the Form 1040 On-Line FilingProgram or the Form 1040 ELF Program,or that is suspended from participating inthe Form 1040 On-Line Filing Program orthe Form 1040 ELF Program. This in-cludes any individual whose actions re-sulted in the rejection or suspension of acorporation or a partnership from theForm 1040 On-Line Filing Program or theForm 1040 ELF Program; or

(12) knowingly and directly or indi-rectly accepting employment as an asso-ciate, correspondent, or as a subagentfrom, or sharing fees with, any firm, or-ganization, or individual that is prohib-ited from applying to participate in theForm 1040 On-Line Filing Program orthe Form 1040 ELF Program, or that issuspended from participating in the Form1040 On-Line Filing Program or theForm 1040 ELF Program. This includesany individual whose actions resulted inthe rejection or suspension of a corpora-tion or a partnership from the Form 1040On-Line Filing Program or the Form1040 ELF Program.

SECTION 5. RESPONSIBILITIES OFAN ON-LINE FILER

.01 To ensure that complete returns areaccurately and efficiently filed, an On-Line Filer must comply with all the publi-cations and notices of the Service relatingto electronic filing. Currently, these pub-lications and notices include:

(1) Publication 1345, Handbook forElectronic Filers of Individual Income

Tax Returns, and Publication 1345A,Handbook for Electronic Filers of Indi-vidual Income Tax Returns (Supplement);

(2) Publication 1346, Electronic ReturnFile Specifications and Record Layoutsfor Individual Income Tax Returns;

(3) Publication 1436, Test Package forElectronic Filing of Individual IncomeTax Returns; and

(4) Postings to the Electronic FilingSystem Bulletin Board (EFS BulletinBoard).

.02 An On-Line Filer must maintain ahigh degree of integrity, compliance, andaccuracy.

.03 An On-Line Filer may accept re-turns for on-line electronic filing only fromtaxpayers or from another On-Line Filer.

.04 If an On-Line Filer charges a feefor the electronic transmission of a tax re-turn, the fee may not be based on a per-centage of the refund amount or any otheramount from the tax return.

.05 An On-Line Filer must submit a re-vised Form 8633 (or a letter as providedin section 4.04 of this revenue procedure)to the Andover Service Center within 30days of when any of the conditions orchanges described in section 4.03 or 4.04of this revenue procedure occur. See sec-tion 4.06 of this revenue procedure.

.06 An On-Line Filer must notify theAndover Service Center within 30 days ofdiscontinuing its participation in the Form1040 On-Line Filing Program. This doesnot preclude reapplication in the future.

.07 An On-Line Filer must ensure thatit promptly processes returns submitted toit for electronic filing. See sections 5.09,5.10, and 5.11 of this revenue procedure.However, an On-Line Filer that receives areturn for electronic filing on or beforethe due date of the return must ensure thatthe on-line electronic return is filed on orbefore that due date (including exten-sions). An on-line electronic return is notconsidered filed until the electronic por-tion of the tax return has been acknowl-edged by the Service as accepted for pro-cessing and a completed and signed Form8453–OLhas been received by the Ser-vice. However, if the electronic portionof a return is successfully transmitted onor shortly before the due date and the tax-payer complies with section 7.01 of thisrevenue procedure, the return will bedeemed timely filed. If the electronicportion of a return is transmitted on or

December 29, 1997 54 1997–52 I.R.B.

shortly before the due date and is ulti-mately rejected, but the taxpayer com-plies with section 5.18 of this revenueprocedure, the return will be deemedtimely filed. For a balance due return, seesection 10 of this revenue procedure forinstructions on how to make a timely pay-ment of tax.

.08 An On-Line Filer must ensureagainst the unauthorized use of its EFINor ETIN. An On-Line Filer must nottransfer its EFIN or ETIN by sale, loan,gift, or otherwise to another entity.

.09 An On-Line Filer that participatesas an On-Line Service Provider must:

(1) provide assistance to a subscriber intransmitting the electronic portion of a taxreturn;

(2) ensure that no more than three taxreturns are filed electronically by one sub-scriber;

(3) not provide to a subscriber softwarethat has a Service-assigned productionpassword built into the software;

(4) immediately send to a subscriberthe information provided by a Transmitterunder section 5.17 or 5.18 of this revenueprocedure; and

(5) inform a subscriber upon requestthat information regarding a refund can beobtained by using the IRS TeleTax system.

.10 An On-Line Filer that participatesas a Software Developer must:

(1) promptly correct any software errorwhich causes the electronic portion of areturn to be rejected;

(2) promptly distribute any softwarecorrection;

(3) ensure that its software packagecannot be used to transmit more thanthree electronic returns;

(4) ensure that its software packagecontains a Form 8453–OLformat that canbe printed and used by a taxpayer to filewith the Service;

(5) ensure that its software packagecontains a consent to disclosure state-ment; and

(6) not incorporate into its software aService-assigned production password.

.11 An On-Line Filer that participatesas a Transmitter must:

(1) assign (as prescribed in Publication1345) a Declaration Control Number(DCN) to the electronic portion of eachreturn received from a taxpayer;

(2) include the assigned DCN in the

transmission of the electronic portion of areturn;

(3) transmit all electronic returns withinthree calendar days of receipt to the appro-priate service center based on the statecode in the taxpayer’s return address;

(4) retrieve the acknowledgement file(in which the Service states whether it ac-cepts or rejects the electronic portion of ataxpayer’s return) within two work daysof transmission;

(5) match the acknowledgement file tothe original transmission file and notifythe taxpayer of the status of a transmittedreturn as prescribed in section 5.18 of thisrevenue procedure;

(6) retain, until the end of the calendaryear in which a return was filed, the ac-knowledgement file received from theService;

(7) retain, until the end of the calendaryear in which a return was filed, the com-plete copy of the electronic portion of thereturn (may be retained on magneticmedia) that can be readily and accuratelyconverted into an electronic transmissionthat the Service can process;

(8) immediately contact the ElectronicFiling Unit at the appropriate service cen-ter for further instructions if an acknowl-edgement of acceptance for processinghas not been received by the Transmitterwithin two work days of transmission orif the Transmitter receives an acknowl-edgement for a return that was not trans-mitted on the designated transmission;

(9) promptly correct any transmissionerror that causes an electronic transmis-sion to be rejected;

(10) contact the Electronic Filing Unitat the appropriate service center for assis-tance if a return has been rejected afterthree transmission attempts;

(11) ensure the security of all transmit-ted data;

(12) ensure that it does not transmit oraccept for transmission more than threeelectronic returns originating from onesoftware package;

(13) ensure that the electronic portionof a return contains a completed consentto disclosure statement; and

(14) ensure that it does not use softwarethat has a Service-assigned productionpassword built into the software.

.12 A Transmitter must include an On-Line Service Provider’s EFIN on each re-

turn that the Transmitter accepts from anOn-Line Service Provider.

.13 A Transmitter must enter the letter“O” in Field #15 (Transmission TypeCode) when transmitting the electronicportion of an on-line electronically filedreturn to the Service. See Part II, Section1, page 4, of Publication 1346.

.14 A Transmitter must ensure that itdoes not combine the electronic portion ofan on-line electronically filed return withthe electronic portion of any other returnwithin the same transmission to the Ser-vice.

.15 A Transmitter must ensure that itdoes not use an EFIN or ETIN obtainedthrough the Form 1040 ELF Program in atransmission of the electronic portion of ataxpayer’s return as part of the Form 1040On-Line Filing Program.

.16 If the Service accepts the elec-tronic portion of a taxpayer’s return, theTransmitter must notify the taxpayer (asprescribed in section 5.19 of this revenueprocedure) of the following:

(1) the date the transmission was ac-cepted;

(2) the DCN;(3) where to put the DCN on Form

8453–OL;(4) the requirement to properly com-

plete and timely submit a Form 8453–OLwith accompanying paper documents (in-cluding Form W–2, Wage and Tax State-ment) within one work day;

(5) the appropriate service center’s ad-dress to which Form 8453–OLwith ac-companying paper documents must besent;

(6) that a Form 8453–OLmust be re-ceived by the Service before an on-lineelectronically filed return is complete; and

(7) that the taxpayer’s failure to timelysubmit a Form 8453-OLwith accompany-ing paper documents could result in theService not allowing the taxpayer to file atax return through the Form 1040 On-Line Filing Program in the future.

.17 If the Service informs the Trans-mitter (in an acknowledgement file) thatthe electronic portion of a taxpayer’s re-turn has been rejected, the Transmittermust notify the taxpayer, as prescribed insection 5.19 of this revenue procedure, ofthe following:

(1) that the Service rejected the elec-tronic portion of the taxpayer’s return;

1997–52 I.R.B. 55 December 29, 1997

(2) the date of the rejection;(3) what the reject code(s) means;(4) what steps the taxpayer needs to

take to correct the error that caused the re-jection; and

(5) the information contained in section5.18 of this revenue procedure.

.18 If the taxpayer chooses not to havethe electronic portion of the return cor-rected and transmitted to the Service, or ifthe electronic portion of the return cannotbe accepted for processing by the Service,the taxpayer, in order to file a timely re-turn, must file a paper return by the laterof:

(1) the due date of the return; or(2) ten calendar days after the date the

Service gives notification that the elec-tronic portion of the return is rejected orthat the electronic portion of the returncannot be accepted for processing.The paper return should include an expla-nation of why the return is being filedafter the due date.

.19 A Transmitter that transmits a re-turn of a taxpayer who is a subscriber ofan On-Line Service Provider must notifythe taxpayer by sending an electronictransmission to the On-Line ServiceProvider within two work days of retriev-ing the acknowledgement file. A Trans-mitter that transmits a return of a taxpayerwho is not a subscriber of an On-LineService Provider must notify the taxpayerby:

(1) sending an electronic transmissionto the taxpayer within two work days ofretrieving the acknowledgement file; or

(2) mailing a written notification to thetaxpayer within one work day of retriev-ing the acknowledgement file.

.20 A Transmitter must make availableto the Service upon request all items re-quired by this section to be retained untilthe end of the calendar year in which a re-turn was filed. The Transmitter mustmake this material available either at thebusiness address of the Transmitter orfrom the contact representative named onForm 8633.

.21 A Transmitter is responsible for en-suring that stockpiling does not occur.Stockpiling means collecting returns fromtaxpayers prior to official acceptance intothe Form 1040 On-Line Filing Program,or, after official acceptance into the Form1040 On-Line Filing Program, waiting

more than three calendar days to transmita return to the Service after receiving theinformation necessary for an electronictransmission of a tax return.

.22 An On-Line Filer may not offer,nor in any way participate in or facilitate,a Refund Anticipation Loan (RAL) inconnection with any return filed under theForm 1040 On-Line Filing Program. ARAL is money borrowed by a taxpayerthat is based on a taxpayer’s anticipatedincome tax refund.

.23 An On-Line Filer may not charge aseparate fee for a Direct Deposit. Seesection 9 of this revenue procedure.

.24 In addition to the specific responsi-bilities described in this section, an On-Line Filer must meet all the requirementsin this revenue procedure to keep the priv-ilege of participating in the Form 1040On-Line Filing Program.

SECTION 6. PENALTIES

.01 Penalties for Disclosure or Use ofInformation.

(1) An On-Line Filer, except a Soft-ware Developer that performs no otherfunction in the Form 1040 On-Line FilingProgram but software development, is atax return preparer (Preparer) under thedefinition of § 301.7216–1(b) of the Reg-ulations on Procedure and Administra-tion. A Preparer is subject to a criminalpenalty for unauthorized disclosure or useof tax return information. See § 7216 ofthe Internal Revenue Code and

§ 301.7216–1(a). In addition, § 6713establishes civil penalties for unautho-rized disclosure or use of tax return infor-mation.

(2) Under § 301.7216–2(h), disclosureof tax return information among acceptedOn-Line Filers for the purpose of prepar-ing a return is permissible. For example,an On-Line Service Provider may pass ontax return information to a Transmitter forthe purpose of having an on-line elec-tronic return formatted and transmitted tothe Service. However, if the tax return in-formation is disclosed or used in anyother way, an On-Line Filer may be sub-ject to the penalties described in section6.01(1) of this revenue procedure.

.02 Other Preparer Penalties.(1) Preparer penalties may be asserted

against an individual or firm meeting thedefinition of an income tax return pre-

parer under § 7701(a)(36) and § 301.7701–15. Preparer penalties thatmay be asserted under appropriate cir-cumstances include, but are not limited to,those set forth in §§ 6694, 6695, and6713.

(2) Under § 301.7701–15(d), an On-Line Filer is not an income tax return pre-parer for the purpose of assessing mostpreparer penalties as long as the On-LineFiler’s services are limited to “typing, re-production, or other mechanical assis-tance in the preparation of a return orclaim for refund.”

(3) If an On-Line Filer alters the returninformation in a nonsubstantive way, thisalteration will be considered to comeunder the “mechanical assistance” excep-tion described in § 301.7701–15(d)(1). Anonsubstantive change is a correction orchange limited to a transposition error,misplaced entry, spelling error, or arith-metic correction that falls within the fol-lowing tolerances:

(a) the amount of “Total tax”, “Federalincome tax withheld”, “Refund”, or“Amount you owe” on Form 8453–OLdiffers from the corresponding amount onthe electronic portion of the tax return byno more than $7;

(b) the amount of “Total income” shownon Form 8453–OLdiffers from the corre-sponding amount on the electronic portionof the tax return by no more than $25; or

(c) dropping cents and rounding towhole dollars.

(4) If an On-Line Filer alters the returninformation in a substantive way, ratherthan having the taxpayer alter the return,the On-Line Filer will be considered to bean income tax return preparer for pur-poses of § 7701(a)(36).

(5) If an On-Line Filer goes beyondmechanical assistance, the On-Line Filermay be held liable for income tax returnpreparer penalties. See Rev. Rul. 85–189,1985–2 C.B. 341 (which describes a situ-ation where a Software Developer wasdetermined to be an income tax returnpreparer and subject to certain preparerpenalties).

.03 Other Penalties.In addition to theabove specified provisions, the Servicereserves the right to assert all appropriatepreparer, nonpreparer, and disclosurepenalties against an On-Line Filer as war-ranted under the circumstances.

December 29, 1997 56 1997–52 I.R.B.

SECTION 7. FORM 8453–OL, U.S. INDIVIDUAL INCOME TAX DECLARATION FOR ON-LINE FILING

.01 Procedures for Completing Form8453–OL.

(1) Form 8453–OLmust be completedby the taxpayer in accordance with the in-structions for that form.

(2) The taxpayer(s)’s name, address,social security number(s), tax return in-formation, and direct deposit of refund in-formation in the electronic transmissionmust be identical to the information onthe Form 8453–OLthat the taxpayer(s)signs and will mail to the appropriate ser-vice center.

(3) If the electronic portion of a returnwas filed as a joint return, both spouses’signatures are required on Form 8453–OL.

(4) The taxpayer’s Form 8453–OLmustbe sent to the address of the appropriateservice center within one work day afterthe taxpayer is provided notification thatthe electronic portion of the taxpayer’s re-turn has been accepted for processing.

.02 Missing Form 8453–OL.If theService determines that a Form 8453–OLis missing, the taxpayer must provide theService with a replacement. A taxpayermust also provide a copy of any Form W–2, Wage and Tax Statement, Form W–2G,Certain Gambling Winnings, Form 1099–R, Distributions From Pensions, Annu-ities, Retirement or Profit-Sharing Plans,IRAs, Insurance Contracts, etc., and allother attachments to Form 8453–OL.

.03 Substitute Form 8453–OL.If asubstitute Form 8453–OLis used, it mustbe approved by the Service prior to use.See Rev. Proc. 96–48, 1996–2 C.B. 339.

SECTION 8. INFORMATION AN ON-LINE FILER MUSTPROVIDE TOTHE TAXPAYER

01 The Transmitter must advise a tax-payer to retain a complete copy of the re-turn and any supporting material.

.02 The Transmitter must advise thetaxpayer that an amended return, ifneeded, must be filed as a paper returnand mailed to the service center thatwould handle the taxpayer’s paper return.

.03 The Transmitter must give the tax-payer the Declaration Control Number(DCN) for the taxpayer’s Form 8453–OL

and instructions to the taxpayer for enter-ing the DCN on Form 8453–OL.

.04 If a taxpayer inquires about thestatus of a refund, the Transmitter, or On-Line Service Provider if the taxpayer is asubscriber, must advise the taxpayer thatthe taxpayer can call the local IRS Tele-Tax number to inquire about the status ofthe taxpayer’s refund. The Transmitter orOn-Line Service Provider should also ad-vise the taxpayer to wait at least threeweeks from the date the Service gave no-tification that the electronic portion of thetaxpayer’s return was accepted for pro-cessing before call ing the TeleTaxnumber.

.05 The Transmitter must inform thetaxpayer that the address on the electronicportion of the return, once processed, willbe used to update the taxpayer’s addressof record. The Internal Revenue Serviceuses the taxpayer’s address of record forvarious notices that are required to be sentto a taxpayer’s “last known address”under the Internal Revenue Code and forrefunds of overpayments of tax (unlessotherwise specifically directed by the tax-payer, such as by Direct Deposit).

SECTION 9. DIRECTDEPOSITOFREFUNDS

.01 The Service will ordinarily processa request for Direct Deposit but reservesthe right to issue a paper refund check.

.02 The Service does not guarantee aspecific date by which a refund will be di-rectly deposited into the taxpayer’s finan-cial institution account.

.03 Neither the Service nor FinancialManagement Service (FMS) is responsi-ble for the misapplication of a Direct De-posit that is caused by error, negligence,or malfeasance on the part of the tax-payer, On-Line Filer, financial institution,or any of their agents.

SECTION 10. BALANCE DUE RETURNS

.01 An on-line electronically filedbalance due return is transmitted to theappropriate service center in the samemanner that a refund or zero balance re-turn is filed. A balance due return is notcomplete unless and until the Service re-ceives Form 8453–OLcompleted andsigned by the taxpayer.

.02 The Transmitter must furnish Form1040–V, Payment Voucher, to a taxpayer

who electronically files a balance due re-turn.

.03 To expedite the crediting of a taxpayment, a taxpayer who electronicallyfiles a balance due return should mail hisor her tax payment with either Form1040–V or the scannable paymentvoucher that is included in some tax pack-ages. Each of these options has specificmailing instructions.

.04 A taxpayer who electronically filesa balance due return must make a full andtimely payment of any tax that is due.Failure to make full payment of any taxthat is due on or before April 15, 1998,will result in the imposition of interest andmay result in the imposition of penalties.

SECTION 11. ADVERTISING STANDARDS FOR ON-LINE FILERS

.01 An On-Line Filer shall complywith the advertising and solicitation pro-visions of 31 C.F.R. Part 10 (Treasury De-partment Circular No. 230). This circularprohibits the use or participation in theuse of any form of public communicationcontaining a false, fraudulent, misleading,deceptive, unduly influencing, coercive,or unfair statement or claim. Any claimsconcerning faster refunds by virtue ofelectronic filing must be consistent withthe language in official Service publica-tions.

.02 An On-Line Filer must adhere toall relevant federal, state, and local con-sumer protection laws that relate to adver-tising and soliciting.

.03 An On-Line Filer must not use theService’s name, “Internal Revenue Ser-vice” or “IRS”, within a firm’s name.

.04 An On-Line Filer must not use im-proper or misleading advertising in rela-tion to the Form 1040 On-Line Filing Pro-gram (including the time frames forrefunds).

.05 An On-Line Filer using electronicfiling promotional materials or logos pro-vided by the Service must comply with allService instructions pertaining to the pro-motional materials or logos.

.06 Use of Direct Deposit name andlogo.

(1) The name “Direct Deposit” will beused with initial capital letters or all capi-tal letters.

(2) The logo/graphic for Direct Depositwill be used whenever feasible in adver-tising copy.

1997–52 I.R.B. 57 December 29, 1997

(3) The color or size of the Direct De-posit logo/graphic may be changed whenused in advertising pieces.

.07 Advertising materials shall notcarry the FMS, IRS, or other TreasurySeals.

.08 Advertising for a cooperative elec-tronic return filing project (public/privatesector) must clearly state the names of allcooperating parties.

.09 If an On-Line Filer uses radio ortelevision broadcasting to advertise, thebroadcast must be pre-recorded. The On-Line Filer must keep a copy of the pre-recorded advertisement for a period of atleast 36 months from the date of the lasttransmission or use.

.10 If an On-Line Filer uses direct mailor fax communications to advertise, theOn-Line Filer must retain a copy of the ac-tual mailing or fax, along with a list orother description of firms, organizations,or individuals to whom the communicationwas mailed, faxed, or otherwise distributedfor a period of at least 36 months from thedate of the last mailing, fax, or distribution.

.11 Acceptance to participate in theForm 1040 On-Line Filing Program doesnot imply endorsement by the Service,FMS, or the Treasury Department of thesoftware or quality of services provided.

SECTION 12. MONITORING ANDSUSPENSION OF AN ON-LINE FILER

.01 The Service will monitor an On-Line Filer for conformity with this rev-enue procedure. Before suspending anOn-Line Filer, the Service may issue awarning letter that describes specific cor-rective action for deviations from this rev-enue procedure. However, the Service canimmediately suspend, without notice, anOn-Line Filer from the Form 1040 On-Line Filing Program. In most circum-stances, a suspension from participation inthe Form 1040 On-Line Filing Program iseffective as of the date of the letter inform-ing the On-Line Filer of the suspension.

.02 If a Principal or Responsible Of-ficial is suspended from the Form 1040On-Line Filing Program, every entity thatlisted the suspended Principal or Respon-sible Official on its Form 8633 may alsobe suspended.

.03 The Service will monitor thetimely receipt of Forms 8453–OL.

.04 The Service will monitor the qual-ity of an On-Line Filer’s transmissions

throughout the filing season. The Servicewill also monitor the electronic portion ofreturns and tabulate rejections, errors, andother defects. If quality deteriorates, theOn-Line Filer will receive a warning fromthe Service.

.05 The Service will monitor complaintsabout an On-Line Filer and issue a warningor suspension letter as appropriate.

.06 The Service reserves the right tosuspend an On-Line Filer from participa-tion in the Form 1040 On-Line Filing Pro-gram for violating any provision of thisrevenue procedure. Generally, the Ser-vice will advise a suspended On-LineFiler concerning the requirements forreacceptance into the Form 1040 On-LineFiling Program. The following reasonsmay lead to a warning letter and/or sus-pension of an On-Line Filer from theForm 1040 On-Line Filing Program (thislist is not all-inclusive):

(1) the reasons listed in section 4.15 ofthis revenue procedure;

(2) deterioration in the format of indi-vidual transmissions;

(3) unacceptable cumulative error orrejection rate;

(4) stockpiling returns at any timewhile participating in the Form 1040 On-Line Filing Program;

(5) failure on the part of a Transmitterto retrieve acknowledgement files withintwo work days of transmission by theService;

(6) failure on the part of a Transmitterto notify the taxpayer, as prescribed insection 5.19 of this revenue procedure, ofthe status of a transmitted return withintwo work days of receipt of the acknowl-edgement files from the Service;

(7) failure on the part of an On-LineService Provider to ensure that no morethan three tax returns are filed electroni-cally by one subscriber;

(8) failure on the part of a Transmitterto ensure that it does not transmit or ac-cept for transmission more than threeelectronic returns originating from onesoftware package;

(9) significant complaints about an On-Line Filer;

(10) failure on the part of an On-LineFiler to ensure against the unauthorizeduse of its EFIN and/or ETIN;

(11) failure on the part of an On-LineFiler to cooperate with the Service’s ef-forts to investigate electronic filingabuse;

(12) violation of the advertising stan-dards described in section 11 of this rev-enue procedure;

(13) failure to maintain and make avail-able records as described in section 5.20of this revenue procedure;

(14) failure to supply a taxpayer withan accurate DCN;

(15) failure to give effective instruc-tions to a taxpayer concerning the entry ofthe DCN on Form 8453–OL; or

(16) failure to timely submit a revisedForm 8633 (or a letter containing thesame information contained in a revisedForm 8633) notifying the Service ofchanges described in section 4.03 or 4.04of this revenue procedure.

.07 The Service may list in the InternalRevenue Bulletin, district office listings,district office newsletters, and on the EFSBulletin Board the name and owner(s) ofany entity suspended from the Form 1040On-Line Filing Program and the effectivedate of the suspension.

.08 If a participant is suspended fromparticipating in the Form 1040 On-LineFiling Program, the period of suspensionincludes the remainder of the calendaryear in which the suspension occurs plusthe next two calendar years. A suspendedparticipant may submit a new applicationfor the application period immediatelypreceding the end of the suspension.

SECTION 13. ADMINISTRATIVE REVIEW PROCESS FOR DENIALOFPARTICIPATION IN THE FORM 1040ON-LINE FILING PROGRAM

.01 An applicant that has been deniedparticipation in the Form 1040 On-LineFiling Program has the right to an admin-istrative review. During the administra-tive review process, the denial of partici-pation remains in effect.

.02 In response to the submission of aForm 8633, the Andover Service Centerwill either (1) accept an applicant into theForm 1040 On-Line Filing Program, or(2) issue a proposed letter of denial thatexplains to the applicant why the servicecenter proposes to reject the application toparticipate in the Form 1040 On-Line Fil-ing Program.

.03 An applicant who receives a pro-posed letter of denial may mail or deliver,within 30 calendar days of the date of theproposed letter of denial, a written re-sponse to the Andover Service Center.

December 29, 1997 58 1997–52 I.R.B.

The applicant’s response must address theservice center’s reason(s) for proposingthe denial to participate.

.04 Upon receipt of an applicant’swritten response, the Andover ServiceCenter will reconsider its proposed letterof denial. The service center may either(1) withdraw its proposed letter of denialand admit the applicant into the Form1040 On-Line Filing Program, or (2) fi-nalize the proposed denial letter.

.05 If an applicant receives a final de-nial letter from the Andover Service Cen-ter, the applicant is entitled to an appeal,in writing, to the Director of Practice.

.06 The appeal must be mailed or de-livered to the Andover Service Centerwithin 30 calendar days of the date of thefinal denial letter. An applicant’s writtenappeal must contain a detailed explana-tion, with supporting documentation, ofwhy the denial should be reversed.

.07 The Andover Service Center will,upon receipt of a written appeal to the Di-rector of Practice, forward to the Directorof Practice its file on the applicant and thematerial described in section 13.06 of thisrevenue procedure. The service centerwill forward these materials to the Direc-tor of Practice within 15 calendar days ofreceipt of the applicant’s written appeal.

.08 Failure to respond within either ofthe 30-day periods described in sections13.03 and 13.06 of this revenue procedureirrevocably terminates an applicant’s rightto an administrative review or appeal.

.09 If an application for participation inthe Form 1040 On-Line Filing Program isdenied, the applicant is ineligible to submita new application for two years from theapplication date of the denied application.

SECTION 14. ADMINISTRATIVE REVIEW PROCESS FOR SUSPENSION FROM THE FORM 1040 ON-LINE FILING PROGRAM

.01 An On-Line Filer that has beensuspended from participation in the Form1040 On-Line Filing Program has theright to an administrative review. Duringthe administrative review process, thesuspension remains in effect.

.02 If an On-Line Filer receives a sus-pension letter, the On-Line Filer may mailor deliver, within 30 calendar days of thedate of the suspension letter, a detailedwritten explanation, with supporting doc-

umentation, of why the suspension lettershould be withdrawn. This written re-sponse should be sent to the district officeor service center that issued the suspen-sion letter.

.03 Upon receipt of the On-LineFiler’s written response, the district officeor service center will reconsider its sus-pension of the On-Line Filer. The districtoffice or service center may either (1)withdraw its suspension letter, or (2) af-firm the suspension.

.04 If the On-Line Filer receives a let-ter affirming the suspension, the On-LineFiler is entitled to an appeal, in writing, tothe Director of Practice.

.05 The appeal must be mailed or de-livered to the district office or servicecenter that issued the suspension letterwithin 30 calendar days of the date of theletter affirming the suspension. The On-Line Filer’s written appeal must containdetailed reasons, with supporting docu-mentation, for reversal of the suspension.

.06 The district office or service centerwhose decision to suspend is being ap-pealed will, upon receipt of a written ap-peal to the Director of Practice, forwardits file on the On-Line Filer to the Direc-tor of Practice. The district office or ser-vice center will also forward to the Direc-tor of Practice the material described insection 14.05 of this revenue procedure.The district office or the service centerwill forward these materials within 15calendar days of the receipt of an On-LineFiler’s written request for appeal.

.07 Failure to appeal within either ofthe 30-day periods described in sections14.02 and 14.05 of this revenue procedureirrevocably terminates an On-Line Filer’sright to an appeal.

SECTION 15. EFFECTON OTHERDOCUMENTS

Rev. Proc. 96–62, 1996–2 C.B. 412, issuperseded.


This revenue procedure is effective De-cember 29, 1997.

SECTION 17. INTERNALREVENUESERVICE OFFICE CONTACT

All questions regarding the electronicfiling aspects of the Form 1040 On-Line

Filing Program should be directed to theIRS Headquarters Electronic Filing Of-fice. The telephone number for this pur-pose is (202) 283-0531 (not a toll-freenumber). All questions regarding the on-line aspects of this program should be di-rected to the IRS Headquarters Form1040 On-Line Filing Program Analyst.The telephone number for this purpose is(202) 283-0265 (not a toll-free number).The address for the IRS HeadquartersForm 1040 On-Line Filing Program Ana-lyst is T:ETA:O:P, 5000 Ellin Road, Lan-ham, MD 20706.

SECTION 18. PAPERWORK ACT

The collections of information con-tained in this revenue procedure havebeen reviewed and approved by the Of-fice of Management and Budget in accor-dance with the Paperwork Reduction Act(44 U.S.C. 3507) under control number1545-1513.

An agency may not conduct or sponsor,and a person is not required to respond to,a collection of information unless the col-lection of information displays a validcontrol number.

The collections of information in thisrevenue procedure are in sections 4, 5, 8,and 11 of the revenue procedure. This in-formation is required by the IRS to imple-ment the Form 1040 On-Line Filing Pro-gram and to enable taxpayers to file theirindividual income tax returns electroni-cally through the Form 1040 On-Line Fil-ing Program. The information will beused to ensure that taxpayers receive accu-rate and essential information regardingthe filing of their return through the Form1040 On-Line Filing Program and to iden-tify the persons involved in the filing of areturn through the Form 1040 On-LineFiling Program. The collections of infor-mation are required to retain the benefit ofparticipating in the Form 1040 On-LineFiling Program. The likely respondentsare business or other for-profit institutions.

The estimated total annual reportingand recordkeeping burden is 5,926hours.

The estimated annual burden per re-spondent/recordkeeper varies from eight(8) minutes to 455 hours, depending on in-dividual circumstances, with an estimatedaverage of 423 hours (or approximately

1997–52 I.R.B. 59 December 29, 1997

two (2) minutes per on-line electronicallyfiled return). The estimated number of re-spondents and recordkeepers is 14.

The estimated annual frequency of re-sponses is on occasion.

Books or records relating to a collec-tion of information must be retained aslong as their contents may become mater-ial in the administration of any internalrevenue law. Generally, tax returns andtax return information are confidential, asrequired by 26 U.S.C. § 6103.

Social Security Contribution andBenefit Base

Under authority contained in the SocialSecurity Act (“the Act”), the Commis-sioner, Social Security Administration,has determined and announced (62 F.R.58762, dated October 30, 1997) that thecontribution and benefit base for remu-neration paid in 1998, and self-employ-ment income earned in taxable years be-ginning in 1998 is $68,400.

“Old-Law” Contribution and Benefit Base

General.The 1998 “old-law” contribu-tion and benefit base is $50,700. This isthe base that would have been effectiveunder the Act without the enactment of

the 1977 amendments. The base is com-puted under section 230(b) of the Act as itread prior to the 1977 amendments.

The “old-law” contribution and benefitbase is used by:

(a) the Railroad Retirement program todetermine certain tax liabilities and tier IIbenefits payable under that program tosupplement the tier I payments whichcorrespond to basic Social Security bene-fits,

(b) the Pension Benefit Guaranty Cor-poration to determine the maximumamount of pension guaranteed under theEmployee Retirement Income SecurityAct (as stated in section 230(d) of the So-cial Security Act),

(c) Social Security to determine a yearof coverage in computing the special mini-mum benefit, as described earlier, and

(d) Social Security to determine a yearof coverage (acquired whenever earningsequal or exceed 25 percent of the “old-law” base for this purpose only) in com-puting benefits for persons who are alsoeligible to receive pensions based on em-ployment not covered under section 210of the Act.

Domestic Employee CoverageThr eshold

General.Section 2 of the “Social Secu-rity Domestic Employment Reform Act of

1994” (Pub. L. 103–387) increased thethreshold for coverage of a domestic em-ployee’s wages paid per employer from$50 per calendar quarter to $1,000 in cal-endar year 1994. The statute holds thecoverage threshold at the $1,000 level for1995 and then increases the threshold in$100 increments for years after 1995. Theformula for increasing the threshold isprovided in section 3121(x) of the Inter-nal Revenue Code.

Computation.Under the formula, thedomestic employee coverage thresholdamount for 1998 shall be equal to the1995 amount of $1,000 multiplied by theratio of the national average wage indexfor 1996 to that for 1993. If the amount sodetermined is not a multiple of $100, itshall be rounded to the next lower multi-ple of $100.

Domestic Employee Coverage Thresh-old Amount.The ratio of the national av-erage wage index for 1996, $25,913.90,compared to that for 1993, $23,132.67, is1.1202295. Multiplying the 1995 domes-tic employee coverage threshold amountof $1,000 by the ratio of 1.1202295 pro-duces the amount of $1,120.23, whichmust then be rounded to $1,100. Accord-ingly, the domestic employee coveragethreshold amount is determined to be$1,100 for 1998.

December 29, 1997 60 1997–52 I.R.B.

Extension of Federal TaxDeposits Due Dates for ExtraFederal Holiday

Announcement 97–124

The Internal Revenue Service will ex-tend the December 26 due date for federaltax deposits in recognition of the presi-dential executive order giving federal em-ployees an extra holiday.

Normal deposit due date for payrolltax liabilities of $100,000 or more forwages paid on December 24 would beDecember 26. This deposit due date isextended to Monday, December 29, 1997.

The semi-weekly depositors with pay-roll dates Dec 20, 21, 22, 23 must depositby Tuesday, December 30, 1997.

Foundations Status of CertainOrganizations


The following organizations havefailed to establish or have been unable tomaintain their status as public charities oras operating foundations. Accordingly,grantors and contributors may not, afterthis date, rely on previous rulings or des-ignations in the Cumulative List of Orga-nizations (Publication 78), or on the pre-sumption arising from the filing of noticesunder section 508(b) of the Code. Thislisting does not indicate that the organiza-tions have lost their status as organiza-tions described in section 501(c)(3), eligi-ble to receive deductible contributions.

Former Public Charities.The followingorganizations (which have been treated asorganizations that are not private founda-tions described in section 509(a) of theCode) are now classified as private foun-dations:Aden Relief Services, Alexandria, VAAfrican-American Family History

Association, Memphis, TNAfrican American Men Against

Narcotics, Inc., AA-MAN, Inc., Dallas,TX

Alliance for the Welfare of Animals,Springfield, MO

Allied Housing Group Ltd, St. Louis,MO

All Saints Scholarship Fund, Norfolk, VA

Almena Senior Citizens Inc., Almena, KSAlpha Woodward Restoration Inc.,

Detroit, MIAlpine Regional Education Center,

Gaylord, MIAlso Morale Inc., Englewood, COAlternative Radio Coalition Incorporated,

Charlotte, NCAlternative Theatre Company, Phoenix,

AZAlternative Workhaven Inc., Eudora, KSAltrusa Foundation, Fort Worth, TXAltrusa Teen Share Inc., Coldwater, MIAlvarado Historical Association Inc.,

Alvarado, TXAman Community, Cleveland, OHAmateur Hardwood Association of Red

Stick, Baton Rouge, LAAmbassadors for Christ, Nashville, NCAmber Waves Inc., Jasper, ALAmbulance Fund Raising Committee,

Townsend, WIAmdpa Foundation Inc., Pine Bluff, ARAmelia Island Chorale Inc., Fernandina

Beach, FLAmerica the Beautiful Centennial

Celebration, Inc., Colorado Springs, COAmerican Assistance to Eastern Europe,

Inc., Satellite Beach, FLAmerican Association for Chronic

Fatigue Syndrome, Inc., Tulsa,OKAmerican Bosnian Herzegovinian

Association, Clinton Township, MIAmerican Childrens Welfare Foundation,

Flora, ILAmerican Disabilities Association,

Marshall, TXAmerican Foundation for Removal of

Addictions, Inc., Scottsdale, AZAmerican Freedom Assembly Inc.,

Trussville, ALAmerican Friends of Mesilath Yesharim,

Inc., Baltimore, MDAmerican Friends of the William Harvey

Research Institute, Inc., Philadelphia,PA

American Indian Center of CentralFlorida, Inc., Orlando, FL

American Mountain Guides Association,Golden, CO

American Multi-Racial Film Series, NewYork, NY

American Muslim Support Group Inc.,Belridge, MO

American Podiatric Arthroscopic Association, Inc., Lorain, OH

American Quiz Bowl Association Inc.,New Orleans, LA

American Russian Medical Exchange,Lansing, MI

American Society of Dermatology Inc.,Midwest City, OK

American-Somali Council, Washington,DC

American Stories Inc., Philadelphia, PAAmerican Veterinary History Society,

Ames, IAAmerican Virtuosi Foundation Inc.,

Birmingham, ALAmerican Waterfowl Association Inc.,

Atlanta, GAAmerican Way Inc., Baltimore, MDAmericans and Germans Embracin Both

Nationalities in Dialogue and Association, Detroit, MI

Americans for Mentored Officer Recruitment and Education, Houston,TX

Americas Art for Life Inc., Miami, FLAmericas Favorite Pre-Teen Foundation,

Inc., Lake Ariel, PAAngleton Area Crimestoppers Inc.,

Angleton, TXAnimal Aid for Vermilion Area Inc.,

Abbeville, LAAnimal Protection League of Pulaski

County, Inc., Somerset, KYAnimal Relief Fund Inc., Garland, TXAmhe Incorporated, Chicago, ILAmigos for Education Inc., Alice, TXAmoco Dealers and Jobbers for Kids

Corporation, White Bear Lake, MNAnchor Ministries Inc., Conyers, GAAndrew Jackson Institute Inc., Nashville,

TNAndrew Magee-Scott Verplank

Endowment Fund, Dallas, TXAnimal Relief Fund Inc., Parker, AZAnimal Welfare Society, Farmington, NMAnimals Pals Inc., Farmington, MIAnioma Association of Nigeria Inc.,

Hyattsville, MDAnna Jonesboro Community Pride, Inc.,

Anna, ILAnnual Emancipation Day Celebration,

Inc., Gallipolis, OHAnnunciation Greek Orthodox Church of

LR-AR Scholarship Foundation Inc.,Little Rock, AR

Anoka County Tree Board Inc., Anoka,MN

Anti-Rheumatic Drug Guidelines Fund,Inc., Phoenix, AZ

Part IV. Items of General Interest

1997–52 I.R.B. 61 December 29, 1997

Antrim-Kalkaska Literacy Council, Kewadin, MI

Apostolic Development Corporation, Detroit, MI

Applecor Foundation Inc., Chicago, ILAqua-Tex Swim Team Inc., Klein, TXAquatic Medical Research &

Development, Ltd., Inc., Miami, FLAquia Harbor Volunteer Rescue Squad,

Inc., Stafford, VAArab American Medical Association-

Pittsburgh Chapter, Murrysville, PAArc Thriftown Inc., Farmington, NMArdbraccan Foundation Inc., Shorewood,

WIArdis Rhinehart Kremer Home of the

United Church of Christ, Conneaut,OH

Ardmore Area Rapid Responders Inc.,Ardmore, AL

Area Counties Council on AlcoholismDrug Abuse, Bellville, TX

Arizona Academy of Family PhysiciansFoundation, Inc., Phoenix, AZ

Arizona Association of Conservation Districts, Phoenix, AZ

Campaign for Energy Efficiency in Education and Health Care, Washington, DC

Childrens Dance Co., Chattanooga, TNCoalition for a National Memorial to

Mahatma Gandhi, Potomac, MDCommittee to Restore Pop Floyd Field,

Inc., Atlantic City, NJCystic Fibrosis Care Group Inc.,

Windermere, FLGorgias Association Inc., Bellevue, COHollister Citizens Organization, Inc.,

Hollister, NCInternational Cultural and Friendship

Association, Mililani, HILibrary Foundation of Jefferson County,

Inc., Montrello, FLManasota Theatre Organ Society, Inc.,

Bradenton, FLMid-South Tissue Bank, Inc., Memphis,

TNRock the Vote Education Fund, Santa

Monica, CASan Diego Flute Guild, Poway, CAWendy’s Relief Fund, Inc., Dublin, OHWorld Class School, Inc., Arlington, VA

If an organization listed above submitsinformation that warrants the renewal of itsclassification as a public charity or as a pri-

vate operating foundation, the InternalRevenue Service will issue a ruling or de-termination letter with the revised classifi-cation as to foundation status. Grantors andcontributors may thereafter rely upon suchruling or determination letter as providedin section 1.509(a)–7 of the Income TaxRegulations. It is not the practice of theService to announce such revised classifi-cation of foundation status in the InternalRevenue Bulletin.

Deletions From Cumulative Listof Organizations Contributionsto Which Are Deductible UnderSection 170 of the Code


The names of organizations that nolonger qualify as organizations describedin section 170(c)(2) of the Internal Rev-enue Code of 1986 are listed below.

Generally, the Service will not disallowdeductions for contributions made to alisted organization on or before the dateof announcement in the Internal RevenueBulletin that an organization no longerqualifies. However, the Service is notprecluded from disallowing a deductionfor any contributions made after an orga-nization ceases to qualify under section170(c)(2) if the organization has nottimely filed a suit for declaratory judg-ment under section 7428 and if the con-tributor (1) had knowledge of the revoca-tion of the ruling or determination letter,(2) was aware that such revocation wasimminent, or (3) was in part responsiblefor or was aware of the activities or omis-sions of the organization that broughtabout this revocation.

If on the other hand a suit for declara-tory judgment has been timely filed, con-tributions from individuals and organiza-tions described in section 170(c)(2) thatare otherwise allowable will continue tobe deductible. Protection under section7428(c) would begin on December 29,1997, and would end on the date the courtfirst determines that the organization isnot described in section 170(c)(2) as moreparticularly set forth in section7428(c)(1).

For individual contributors, the maxi-mum deduction protected is $1,000, witha husband and wife treated as one contrib-utor. This benefit is not extended to anyindividual who was responsible, in wholeor in part, for the acts or omissions of theorganization that were the basis for revo-cation.Exploring Cultural and Educational

Learning, Sandy, UTReal Friends, Inc.,

Aurora, COYouth Today Leaders Tomorrow, Inc.

Golden Valley, CO

Section 7428(c) Validation ofCertain Contributions MadeDuring Pendency of DeclaratoryJudgment Proceedings

This announcement serves notice to po-tential donors that the organization listedbelow has recently filed a timely declara-tory judgment suit under section 7428 ofthe Code, challenging revocation of itsstatus as an eligible donee under section170(c)(2).

Protection under section 7428(c) of theCode begins on the date that the notice ofrevocation is published in the InternalRevenue Bulletin and ends on the date onwhich a court first determines that an or-ganization is not described in section170(c)(2), as more particularly set forth insection 7428(c)(1). In the case of individ-ual contributors, the maximum amount ofcontributions protected during this periodis limited to $1,000.00, with a husbandand wife being treated as one contributor.This protection is not extended to any in-dividual who was responsible, in whole orin part, for the acts or omissions of the or-ganization that were the basis for the re-vocation. This protection also applies(but without limitation as to amount) toorganizations described in section170(c)(2) which are exempt from taxunder section 501(a). If the organizationultimately prevails in its declaratory judg-ment suit, deductibility of contributionswould be subject to the normal limitationsset forth under section 170.At Cost Services, Inc.

New York, NY

December 29, 1997 62 1997–52 I.R.B.

Revenue 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,if an 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.

Distinguisheddescribes 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 ap-

plies to both A and B, the prior ruling ismodified because it corrects a publishedposition. (Compare with amplified andclarified, 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 a pe-riod 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 casethe 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 andthat list is expanded by adding furthernames in subsequent rulings. After theoriginal ruling has been supplementedseveral times, a new ruling may be pub-lished that includes the list in the originalruling and the additions, and supersedesall prior rulings 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 current use and for-merly used will appear in material published in theBulletin.

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 Contribution Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Proc..—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statements of Procedral Rules.

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

X—Corporation.

Y—Corporation.

Z—Corporation.

Definition of Terms

1997–52 I.R.B. 63 December 29, 1997

1 A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., published inInternal Revenue Bulletins 1997–1 through 1997–26will be found in Internal Revenue Bulletin 1997–27,dated July 7, 1997.

Numerical Finding List1

Bulletins 1997–27 through 1997–51

Announcements:

97–61, 1997–29 I.R.B. 1397–67, 1997–27 I.R.B. 3797–68, 1997–28 I.R.B. 1397–69, 1997–28 I.R.B. 1397–70, 1997–29 I.R.B. 1497–71, 1997–29 I.R.B. 1597–72, 1997–29 I.R.B. 1597–73, 1997–30 I.R.B. 8697–74, 1997–31 I.R.B.1697–75, 1997–32 I.R.B. 2897–76, 1997–32 I.R.B. 2897–77, 1997–33 I.R.B. 5897–78, 1997–34 I.R.B. 1197–79, 1997–35 I.R.B. 897–80, 1997–34 I.R.B. 1297–81, 1997–34 I.R.B. 1297–82, 1997–34 I.R.B. 1297–83, 1997–34 I.R.B. 1397–84, 1997–34 I.R.B. 1397–85, 1997–35 I.R.B. 897–86, 1997–35 I.R.B. 997–87, 1997–35 I.R.B. 997–88, 1997–35 I.R.B. 997–89, 1997–36 I.R.B. 1097–90, 1997–36 I.R.B. 1097–91, 1997–37 I.R.B. 2597–92, 1997–37 I.R.B. 2697–93, 1997–36 I.R.B. 1197–94, 1997–36 I.R.B. 1297–95, 1997–36 I.R.B. 1297–96, 1997–39 I.R.B.1597–97, 1997–38 I.R.B. 2297–98, 1997–39 I.R.B. 1597–99, 1997–40 I.R.B. 797–100, 1997–40 I.R.B. 897–101, 1997–41 I.R.B. 1397–102, 1997–41 I.R.B. 1597–103, 1997–41 I.R.B. 1697–104, 1997–42 I.R.B. 3997–105, 1997–42 I.R.B. 4097–106, 1997–45 I.R.B. 1197–107, 1997–43 I.R.B. 2597–108, 1997–43 I.R.B. 2597–109, 1997–45 I.R.B. 1297–110, 1997–45 I.R.B. 1497–111, 1997–47 I.R.B. 1597–112, 1997–46 I.R.B. 2097–113, 1997–46 I.R.B.2197–114, 1997–46 I.R.B. 2197–115, 1997–47 I.R.B. 1797–116, 1997–48 I.R.B. 2597–117, 1997–49 I.R.B. 1297–118, 1997–49 I.R.B. 1397–119, 1997–50 I.R.B.6197–120, 1997–50 I.R.B. 6197–121, 1997–50 I.R.B. 6297–122, 1997–50 I.R.B. 6397–123, 1997–51 I.R.B. 28

Court Decisions:

2061, 1997–31 I.R.B. 52062, 1997–32 I.R.B. 8

Delegation Orders

97 (Rev. 34), 1997–41 I.R.B. 14

Delegation Orders–Continued

172 (Rev. 5), 1997–28 I.R.B. 6

Notices:

97–37, 1997–27 I.R.B. 497–38, 1997–27 I.R.B. 897–39, 1997–27 I.R.B. 897–40, 1997–28 I.R.B. 697–41, 1997–28 I.R.B. 697–42, 1997–29 I.R.B. 1297–43, 1997–30 I.R.B. 997–44, 1997–31 I.R.B. 1597–45, 1997–33 I.R.B. 797–46, 1997–34 I.R.B. 1097–47, 1997–35 I.R.B. 597–48, 1997–35 I.R.B. 597–49, 1997–36 I.R.B. 897–50, 1997–37 I.R.B. 2197–51, 1997–38 I.R.B. 2097–52, 1997–38 I.R.B. 2097–53, 1997–40 I.R.B. 697–54, 1997–41 I.R.B. 797–55, 1997–40 I.R.B. 697–56, 1997–43 I.R.B. 1997–57, 1997–43 I.R.B. 1997–58, 1997–45 I.R.B. 797–59, 1997–45 I.R.B. 797–60, 1997–46 I.R.B.897–61, 1997–48 I.R.B.897–62, 1997–49 I.R.B.897–63, 1997–47 I.R.B. 697–64, 1997–47 I.R.B. 797–65, 1997–51 I.R.B. 1497–66, 1997–48 I.R.B.897–67, 1997–48 I.R.B.1097–68, 1997–48 I.R.B. 1197–69, 1997–48 I.R.B. 1297–70, 1997–49 I.R.B.997–71, 1997–49 I.R.B.997–72, 1997–50 I.R.B.797–73, 1997–51 I.R.B. 1697–74, 1997–51 I.R.B. 1897–75, 1997–51 I.R.B. 18

Railr oad Retirement Quarterly Rate:

1997–28 I.R.B. 5

Public Laws

105–35, 1997–43 I.R.B. 13

Proposed Regulations:

REG–103330–97, 1997–51 I.R.B. 24REG–104893–97, 1997–29 I.R.B. 13REG–105160–97, 1997–37 I.R.B. 22REG–105162–97, 1997–48 I.R.B. 13REG–106043–97, 1997–37 I.R.B. 24REG–107644–97, 1997–32 I.R.B. 24REG–107872–97, 1997–47 I.R.B. 11REG–114000–97, 1997–47 I.R.B. 13REG–208151–91, 1997–38 I.R.B. 21REG–243025–96, 1997–51 I.R.B. 25REG–246250–96, 1997–42 I.R.B. 30REG–251985–96, 1997–48 I.R.B. 18REG–252936–96, 1997–51 I.R.B. 27

Revenue Procedures:

97–32, 1997–27 I.R.B. 997–32A, 1997–34 I.R.B. 1097–33, 1997–30 I.R.B. 10

Revenue Procedures–Continued97–34, 1997–30 I.R.B.1497–35, 1997–33 I.R.B. 1197–36, 1997–33 I.R.B. 1497–37, 1997–33 I.R.B. 1897–38, 1997–33 I.R.B. 4397–39, 1997–33 I.R.B. 4897–40, 1997–33 I.R.B. 5097–41, 1997–33 I.R.B. 597–42, 1997–33 I.R.B. 5797–43, 1997–39 I.R.B. 1297–44, 1997–41 I.R.B. 897–45, 1997–41 I.R.B. 1097–46, 1997–42 I.R.B. 1097–47, 1997–42 I.R.B. 1997–48, 1997–43 I.R.B. 1997–49, 1997–43 I.R.B. 2297–50, 1997–45 I.R.B. 897–51, 1997–45 I.R.B. 997–52, 1997–46 I.R.B.1797–53, 1997–47 I.R.B.1097–54, 1997–50 I.R.B.897–55, 1997–51 I.R.B.23

Revenue Rulings:

97–27, 1997–27 I.R.B. 497–28, 1997–28 I.R.B. 497–29, 1997–28 I.R.B. 497–30, 1997–31 I.R.B.1297–31, 1997–32 I.R.B.497–32, 1997–33 I.R.B. 497–33, 1997–34 I.R.B. 497–34, 1997–34 I.R.B. 1497–35, 1997–35 I.R.B. 497–36, 1997–36 I.R.B. 597–37, 1997–37 I.R.B.1597–38, 1997–38 I.R.B.1497–39, 1997–39 I.R.B. 497–40, 1997–39 I.R.B. 897–41, 1997–40 I.R.B. 497–42, 1997–41 I.R.B. 497–43, 1997–42 I.R.B. 897–44, 1997–45 I.R.B. 597–45, 1997–46 I.R.B.497–46, 1997–46 I.R.B.797–47, 1997–47 I.R.B.497–48, 1997–49 I.R.B.597–49, 1997–48 I.R.B. 497–50, 1997–49 I.R.B.597–51, 1997–49 I.R.B. 497–52, 1997–50 I.R.B.4

Treasury Decisions:

8722, 1997–29 I.R.B. 48723, 1997–30 I.R.B. 48724, 1997–36 I.R.B. 48725, 1997–37 I.R.B. 168726, 1997–34 I.R.B. 78727, 1997–34 I.R.B. 58728, 1997–37 I.R.B. 48729, 1997–38 I.R.B. 48730, 1997–38 I.R.B. 168731, 1997–42 I.R.B. 68732, 1997–42 I.R.B. 48733, 1997–43 I.R.B. 88734, 1997–44 I.R.B. 58735, 1997–43 I.R.B. 48736, 1997–50 I.R.B.58737, 1997–51 I.R.B. 118738, 1997–51 I.R.B. 48739, 1997–51 I.R.B.8

December 29, 1997 64 1997–52 I.R.B.

Finding List of Current Action onPreviously Published Items1

Bulletins 1997–27 through 1997–51

*Denotes entry since last publication

Notices:

97–9Modified by97–70, 1997–49 I.R.B. 9

Revenue Procedures:

82–36Modified and superseded by97–49, 1997–43 I.R.B. 22

96–36Superseded by97–34, 1997–30 I.R.B. 14



97–32Modified and amplified by97–32A, 1997–34 I.R.B. 10

Revenue Rulings:

73–67Revoked by97–46, 1997–46 I.R.B. 7

75–7Revoked by97–48, 1997–49 I.R.B. 5

89–42Supplemented by97–31, 1997–32 I.R.B. 4

93–76Clarified, modified, partiallyobsoleted, and superceded by97–39, 1997–39 I.R.B 4

94–7Clarified, modified, partiallyobsoleted, and superceded by97–39, 1997–39 I.R.B 4

1 A cumulative finding list for previously publisheditems mentioned in Internal Revenue Bulletins1997–1 through 1997–26 will be found in InternalRevenue Bulletin 1997–27, dated July 7, 1997.

1997–52 I.R.B. 65 December 29, 1997

Notes

Notes

December 29, 1997 66 1997–52 I.R.B.

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