Professional Documents
Culture Documents
2002–16
April 22, 2002
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2002–18, page 779. REG–167648–01, page 790.
LIFO; price indexes; department stores. The February Proposed regulations under section 705 of the Code provide
2002 Bureau of Labor Statistics price indexes are accepted for guidance for making basis adjustments necessary to coordi-
use by department stores employing the retail inventory and
nate sections 705 and 1032 in situations in which a corpora-
last-in, first-out inventory methods for valuing inventories for
tion owns a direct or indirect interest in a partnership that holds
tax years ended on, or with reference to, February 28, 2002.
stock in that corporation.
Rev. Rul. 2002–19, page 778.
Announcement 2002–43, page 792.
Medical expenses. Uncompensated amounts paid by indi-
viduals for participation in a weight-loss program as treatment This announcement describes a closing agreement program
for a specific disease or diseases (including obesity) diagnosed relating to certain state or local bonds issued in connection
by a physician are expenses for medical care under section with affiliations of section 501(c)(3) hospital organizations.
213 of the Code. The cost of purchasing diet food items is not
deductible under section 213. Rev. Ruls. 55–261 and 79–151 EMPLOYEE PLANS
distinguished.
Notice 2002–24, page 785.
T.D. 8986, page 780. Section 6039D returns with respect to certain fringe
Final regulations under section 705 of the Code provide guid- benefits. This notice suspends the filing requirement imposed
ance for making basis adjustments necessary to coordinate on specified fringe benefit plans by section 6039D of the Code.
sections 705 and 1032 in situations in which a corporation Notice 90–24 modified and superseded.
acquires an interest in a partnership that holds stock in that
corporation. Notice 2002–28, page 785.
Weighted average interest rate update. The weighted aver-
REG–165706–01, page 787. age interest rate for April 2002 and the resulting permissible
Proposed regulations modify the definition of a refunding issue range of interest rates used to calculate current liability for pur-
under section 1.150–1(d) of the regulations in connection with poses of the full funding limitation of section 412(c)(7) of the
a combination of section 501(c)(3) organizations. Generally, Code are set forth.
interest on bonds issued by state and local governments is
excluded from gross income, however, this exclusion does not
apply to certain refunding issues. A public hearing is scheduled
for July 30, 2002.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of and Service personnel and others concerned are cautioned
the Commissioner of Internal Revenue for announcing official against reaching the same conclusions in other cases unless
rulings and procedures of the Internal Revenue Service and for the facts and circumstances are substantially the same.
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general The Bulletin is divided into four parts as follows:
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin Part I.—1986 Code.
contents are consolidated semiannually into Cumulative Bulle- This part includes rulings and decisions based on provisions of
tins, which are sold on a single-copy basis. the Internal Revenue Code of 1986.
It is the policy of the Service to publish in the Bulletin all sub- Part II.—Treaties and Tax Legislation.
stantive rulings necessary to promote a uniform application of
This part is divided into two subparts as follows: Subpart A, Tax
the tax laws, including all rulings that supersede, revoke,
Conventions and Other Related Items, and Subpart B, Legisla-
modify, or amend any of those previously published in the Bul-
tion and Related Committee Reports.
letin. All published rulings apply retroactively unless otherwise
indicated. Procedures relating solely to matters of internal
management are not published; however, statements of inter- Part III.—Administrative, Procedural, and
nal practices and procedures that affect the rights and duties Miscellaneous.
of taxpayers are published. To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
Revenue rulings represent the conclusions of the Service on included in this part are Bank Secrecy Act Administrative Rul-
the application of the law to the pivotal facts stated in the rev- ings. Bank Secrecy Act Administrative Rulings are issued by
enue ruling. In those based on positions taken in rulings to tax- the Department of the Treasury’s Office of the Assistant Secre-
payers or technical advice to Service field offices, identifying tary (Enforcement).
details and information of a confidential nature are deleted to
prevent unwarranted invasions of privacy and to comply with Part IV.—Items of General Interest.
statutory requirements. This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they The first Bulletin for each month includes a cumulative index for
may be used as precedents. Unpublished rulings will not be the matters published during the preceding months. These
relied on, used, or cited as precedents by Service personnel in monthly indexes are cumulated on a semiannual basis, and are
the disposition of other cases. In applying published rulings and
published in the first Bulletin of the succeeding semiannual
procedures, the effect of subsequent legislation, regulations,
period, respectively.
court decisions, rulings, and procedures must be considered,
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.
Percent Change
Groups Feb. Feb. from Feb. 2001
2001 2002 to Feb. 20021
Percent Change
Groups Feb. Feb. from Feb. 2001
2001 2002 to Feb. 20021
DRAFTING INFORMATION ACTION: Final regulations a taxable transaction. Under that ruling,
section 1032 will protect a corporate part-
The principal author of this revenue SUMMARY: This document contains ner from recognizing gain or loss (to the
ruling is Michael Burkom of the Office of final regulations relating to special rules extent allocated to such partner) when the
Associate Chief Counsel (Income Tax and on determination of basis of a partner’s partnership exchanges stock of the corpo-
Accounting). For further information interest under section 705 of the Internal rate partner in a taxable transaction. The
regarding this revenue ruling, contact Mr. Revenue Code. The final regulations are
ruling also concludes that, under section
Burkom at (202) 622–7718 (not a toll- necessary to coordinate sections 705 and
705, the corporate partner increases its
free call). 1032.
basis in its partnership interest by an
DATES: Effective Date: These regula- amount equal to its share of the gain
tions are effective on March 29, 2002. resulting from the partnership’s sale or
Section 705.—Determination Applicability Date: These regulations exchange of the stock.
of Basis of Partner’s Interest are applicable with respect to sales or In situations where a corporation
exchanges of stock occurring after acquires an interest in a partnership that
26 CFR 1.705–1: Determination of basis of part- December 6, 1999. holds that corporation’s stock, a section
ner’s interest. 754 election is not in effect with respect
FOR FURTHER INFORMATION CON-
to the partnership for the taxable year in
T.D. 8986 TACT: Barbara MacMillan or Rebekah A.
which the corporation acquires the part-
Myers (202) 622–3050 (not a toll-free
nership interest, and the partnership later
number).
DEPARTMENT OF THE sells or exchanges the stock, it may be
TREASURY SUPPLEMENTARY INFORMATION: inconsistent with the intent of sections
Internal Revenue Service 705 and 1032 to increase the basis of the
Background corporation’s partnership interest by the
26 CFR Part 1
full amount of the gain that is not recog-
In Rev. Rul. 99–57 (1999–2 C.B. 678), nized.
Determination of Basis of the IRS issued guidance with respect to For instance, assume that a corporation
Partner’s Interest; Special the tax consequences for a partnership (A) purchases a 50 percent interest in a
Rules and a corporate partner where the corpo- partnership for $100,000. The partner-
rate partner contributes its own stock to ship’s only asset is A stock with a basis of
AGENCY: Internal Revenue Service the partnership, and the partnership later $100,000 and a value of $200,000. If the
(IRS), Treasury. exchanges the stock with a third party in
Drafting Information Division. For further information regard- a.m. and 6:30 p.m. Eastern time, Monday
ing this notice, please contact the through Friday. Mr. Newman may be
The principal author of this notice is Employee Plans’ taxpayer assistance tele- reached at 1–202–283–9888 (not a toll-
Todd Newman of the Employee Plans, phone service at 1–877–829–5500 (a toll- free number).
Tax Exempt and Government Entities free number), between the hours of 8:00
Abbreviations
The following abbreviations in current E.O.—Executive Order. PO—Possession of the U.S.
use and formerly used will appear in ER—Employer. PR—Partner.
ERISA—Employee Retirement Income Security Act. PRS—Partnership.
material published in the Bulletin. EX—Executor. PTE—Prohibited Transaction Exemption.
F—Fiduciary. Pub. L.—Public Law.
A—Individual.
FC—Foreign Country. REIT—Real Estate Investment Trust.
Acq.—Acquiescence.
FICA—Federal Insurance Contributions Act. Rev. Proc—Revenue Procedure.
B—Individual.
FISC—Foreign International Sales Company. Rev. Rul.—Revenue Ruling.
BE—Beneficiary.
FPH—Foreign Personal Holding Company. S—Subsidiary.
BK—Bank. F.R.—Federal Register.
B.T.A.—Board of Tax Appeals. S.P.R.—Statements of Procedural Rules.
FUTA—Federal Unemployment Tax Act.
C—Individual. Stat.—Statutes at Large.
FX—Foreign Corporation.
C.B.—Cumulative Bulletin. T—Target Corporation.
G.C.M.—Chief Counsel’s Memorandum.
CFR—Code of Federal Regulations. T.C.—Tax Court.
GE—Grantee.
CI—City. GP—General Partner. T.D.—Treasury Decision.
COOP—Cooperative. GR—Grantor. TFE—Transferee.
Ct.D.—Court Decision. IC—Insurance Company. TFR—Transferor.
CY—County. I.R.B.—Intemal Revenue Bulletin. T.I.R.—Technical Information Release.
D—Decedent. LE—Lessee. TP—Taxpayer.
DC—Dummy Corporation. LP—Limited Partner. TR—Trust.
DE—Donee. LR—Lessor. TT—Trustee.
Del. Order—Delegation Order. M—Minor. U.S.C.—United States Code.
DISC—Domestic International Sales Corporation. Nonacq.—Nonacquiescence. X—Corporation.
DR—Donor. O—Organization. Y—Corporation.
E—Estate. P—Parent Corporation. Z—Corporation.
EE—Employee. PHC—Personal Holding Company.
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2001–27 through 2001–53 is
in Internal Revenue Bulletin 2002–1, dated January 7, 2002.
2
A cumulative list of current actions on previously published
items in Internal Revenue Bulletins 2001–27 through 2001–53 is
in Internal Revenue Bulletin 2002–1, dated January 7, 2002.
2001–51 8971
Superseded by Corrected by
Rev. Proc. 2002–3, 2002–1 I.R.B. 117 Ann. 2002–20, 2002–8 I.R.B. 561
2002–3 8972
Modified by Corrected by
Rev. Proc. 2002–22 I.R.B. 733 Ann. 2002–23, 2002–8 I.R.B. 563
2002–6 8973
Modified by Corrected by
Notice 2002–1, 2002–2 I.R.B. 283 Ann. 2002–14, 2002–7 I.R.B. 540
61–146
Distinguished by
Rev. Rul. 2002–3, 2002–3 I.R.B. 316
64–328
Modified by
Notice 2002–8, 2002–4 I.R.B. 398
66–110
Modified by
Notice 2002–8, 2002–4 I.R.B. 398
73–304
Superseded by
Rev. Proc. 2002–26, 2002–15 I.R.B. 746
73–305
Superseded by
Rev. Proc. 2002–26, 2002–15 I.R.B. 746
79–284
Superseded by
Rev. Proc. 2002–26, 2002–15 I.R.B. 746
89–29
Obsoleted by
T.D. 8976, 2002–5 I.R.B. 421
92–19
Supplemented in part by
Rev. Rul. 2002–12, 2002–11 I.R.B. 624
2002–7
Corrected by
Ann. 2002–13, 2002–7 I.R.B. 540