Revenue Ruling 2003-111
Rev. Rul. 2003-111
Rev. Rul. 2003-111, 2003-45 I.R.B. 1009, 2003-2 C.B. 1009
                      Internal Revenue Service (I.R.S.)
                                Revenue Ruling
                          2003 BASE PERIOD T-BILL RATE
                         Published: November 10, 2003
 Section 995.–Taxation of DISC Income to Shareholders
 2003 base period T-bill rate. The “base period T-bill rate” for the period ending September 30, 2003, is published as required by section 995(f) of the Code.
 2003 base period T-bill rate. The “base period T-bill rate” for the period ending September 30, 2003, is published as required by section 995(f) of the Code.
 Section 995(f)(1) of the Internal Revenue Code provides that a shareholder of a DISC shall pay interest each taxable year in an amount equal to the product of the shareholder’s DISC-related deferred tax liability for the year and the “base period T-bill rate.” Under section 995(f)(4), the base period T-bill rate is the annual rate of interest determined by the Secretary to be equivalent to the average of the 1-year constant maturity Treasury yields, as published by the Board of Governors of the Federal Reserve System, for the 1- year period ending on September 30 of the calendar year ending with (or of the most recent calendar year ending before) the close of the taxable year of the shareholder. The base period T-bill rate for the period ending September 30, 2003, is 1.30 percent.
 Pursuant to section 6222 of the Code, interest must be compounded daily. The table below provides factors for compounding the base period T-bill rate daily for any number of days in the shareholder’s taxable year (including a 52-53 week accounting period) for the 2003 base period T-bill rate. To compute the amount of the interest charge for the shareholder’s taxable year, multiply the amount of the shareholder’s DISC-related deferred tax liability (as defined in section 995(f)(2)) for that year by the base period T-bill rate factor corresponding to the number of days in the shareholder’s taxable year for which the interest charge is being computed. Generally, one would use the factor for 365 days. One would use a different factor only if the shareholder’s taxable year for which the interest charge being determined is a short taxable year, if the shareholder uses the 52-53 week taxable year, or if the shareholder’s taxable year is a leap year.
 For the base period T-bill rates for the periods ending in prior years, see Rev. Rul. 2002-68, 2002-2 C.B. 808, Rev. Rul. 2001-56, 2001-2 C.B. 500, and Rev. Rul. 2000-52, 2000-2 C.B. 516.
DRAFTING INFORMATION
 The principal author of this revenue ruling is David Bergkuist of the Office of the Associate Chief Counsel (International). For further information about this revenue ruling, contact Mr. Bergkuist at (202) 622-3850 (not a toll-free call).
 2003 ANNUAL RATE, COMPOUNDED DAILY
    DAYS       1.30 PERCENT FACTOR
————————————
      1            .000035616
      2            .000071234
      3            .000106853
      4            .000142473
      5            .000178095
      6            .000213718
      7            .000249342
      8            .000284967
      9            .000320594
     10            .000356221
     11            .000391851
     12            .000427481
     13            .000463113
     14            .000498746
     15            .000534380
     16            .000570015
     17            .000605652
     18            .000641290
     19            .000676929
     20            .000712570
     21            .000748212
     22            .000783855
     23            .000819499
     24            .000855145
     25            .000890792
     26            .000926440
     27            .000962089
     28            .000997740
     29            .001033392
     30            .001069045
     31            .001104700
     32            .001140355
     33            .001176012
     34            .001211671
     35            .001247330
     36            .001282991
     37            .001318653
     38            .001354317
     39            .001389981
     40            .001425647
     41            .001461315
     42            .001496983
     43            .001532653
     44            .001568324
     45            .001603996
     46            .001639670
     47            .001675345
     48            .001711021
     49            .001746698
     50            .001782377
     51            .001818057
     52            .001853738
     53            .001889420
     54            .001925104
     55            .001960789
     56            .001996475
     57            .002032163
     58            .002067852
     59            .002103542
     60            .002139233
     61            .002174926
     62            .002210620
     63            .002246315
     64            .002282011
     65            .002317709
     66            .002353408
     67            .002389108
     68            .002424810
     69            .002460513
     70            .002496217
     71            .002531922
     72            .002567629
     73            .002603337
     74            .002639046
     75            .002674756
     76            .002710468
     77            .002746181
     78            .002781895
     79            .002817611
     80            .002853327
     81            .002889045
     82            .002924765
     83            .002960485
     84            .002996207
     85            .003031930
     86            .003067655
     87            .003103381
     88            .003139107
     89            .003174836
     90            .003210565
     91            .003246296
     92            .003282028
     93            .003317761
     94            .003353496
     95            .003389232
     96            .003424969
     97            .003460707
     98            .003496447
     99            .003532188
     100           .003567930
     101           .003603674
     102           .003639419
     103           .003675165
     104           .003710912
     105           .003746661
     106           .003782411
     107           .003818162
     108           .003853914
     109           .003889668
     110           .003925423
     111           .003961179
     112           .003996937
     113           .004032695
     114           .004068455
     115           .004104217
     116           .004139979
     117           .004175743
     118           .004211508
     119           .004247275
     120           .004283043
     121           .004318812
     122           .004354582
     123           .004390353
     124           .004426126
     125           .004461900
     126           .004497676
     127           .004533452
     128           .004569230
     129           .004605009
     130           .004640790
     131           .004676572
     132           .004712355
     133           .004748139
     134           .004783924
     135           .004819711
     136           .004855499
     137           .004891289
     138           .004927079
     139           .004962871
     140           .004998664
     141           .005034459
     142           .005070255
     143           .005106052
     144           .005141850
     145           .005177650
     146           .005213450
     147           .005249253
     148           .005285056
     149           .005320861
     150           .005356667
     151           .005392474
     152           .005428282
     153           .005464092
     154           .005499903
     155           .005535715
     156           .005571529
     157           .005607344
     158           .005643160
     159            .005678977
     160           .005714796
     161           .005750616
     162           .005786437
     163           .005822260
     164           .005858084
     165           .005893909
     166           .005929735
     167           .005965563
     168           .006001392
     169           .006037222
     170           .006073053
     171           .006108886
     172           .006144720
     173           .006180555
     174           .006216392
     175           .006252230
     176           .006288069
     177           .006323909
     178           .006359751
     179           .006395594
     180           .006431438
     181           .006467284
     182           .006503130
     183           .006538979
     184           .006574828
     185           .006610678
     186           .006646530
     187           .006682384
     188           .006718238
     189           .006754094
     190           .006789951
     191           .006825809
     192           .006861668
     193           .006897529
     194           .006933391
     195           .006969255
     196           .007005119
     197           .007040985
     198           .007076853
     199           .007112721
     200           .007148591
     201           .007184462
     202           .007220334
     203           .007256208
     204           .007292083
     205           .007327959
     206           .007363836
     207           .007399715
     208           .007435595
     209           .007471476
     210           .007507359
     211           .007543243
     212           .007579128
     213           .007615014
     214           .007650902
     215           .007686791
     216           .007722681
     217           .007758572
     218           .007794465
     219           .007830359
     220           .007866255
     221           .007902151
     222           .007938049
     223           .007973948
     224           .008009849
     225           .008045750
     226           .008081653
     227           .008117558
     228           .008153463
     229           .008189370
     230           .008225278
     231           .008261188
     232           .008297098
     233           .008333010
     234           .008368923
     235           .008404838
     236           .008440754
     237           .008476671
     238           .008512589
     239           .008548509
     240           .008584430
     241           .008620352
     242           .008656275
     243           .008692200
     244           .008728126
     245           .008764053
     246           .008799982
     247           .008835912
     248           .008871843
     249           .008907775
     250           .008943709
     251           .008979644
     252           .009015580
     253           .009051518
     254           .009087457
     255           .009123397
     256           .009159338
     257           .009195281
     258           .009231225
     259           .009267170
     260           .009303117
     261           .009339064
     262           .009375013
     263           .009410964
     264           .009446915
     265           .009482868
     266           .009518822
     267           .009554778
     268           .009590735
     269           .009626693
     270           .009662652
     271           .009698613
     272           .009734574
     273           .009770538
     274           .009806502
     275           .009842468
     276           .009878435
     277           .009914403
     278           .009950373
     279           .009986343
     280           .010022315
     281           .010058289
     282           .010094264
     283           .010130240
     284           .010166217
     285           .010202195
     286           .010238175
     287           .010274156
     288           .010310139
     289           .010346122
     290           .010382107
     291           .010418093
     292           .010454081
     293           .010490070
     294           .010526060
     295           .010562051
     296           .010598044
     297           .010634038
     298           .010670033
     299           .010706029
     300           .010742027
     301           .010778026
     302           .010814026
     303           .010850028
     304           .010886031
     305           .010922035
     306           .010958040
     307           .010994047
     308           .011030055
     309           .011066064
     310           .011102075
     311           .011138087
     312           .011174100
     313           .011210114
     314           .011246130
     315           .011282147
     316           .011318165
     317           .011354185
     318           .011390206
     319           .011426228
     320           .011462251
     321           .011498276
     322           .011534302
     323           .011570329
     324           .011606358
     325           .011642387
     326           .011678419
     327           .011714451
     328           .011750485
     329           .011786520
     330           .011822556
     331           .011858593
     332           .011894632
     333           .011930672
     334           .011966714
     335           .012002756
     336           .012038800
     337           .012074845
     338           .012110892
     339           .012146940
     340           .012182989
     341           .012219039
     342           .012255091
     343           .012291144
     344           .012327198
     345           .012363253
     346           .012399310
     347           .012435368
     348           .012471427
     349           .012507488
     350           .012543550
     351           .012579613
     352           .012615678
     353           .012651743
     354           .012687811
     355           .012723879
     356           .012759948
     357           .012796019
     358           .012832092
     359           .012868165
     360           .012904240
     361           .012940316
     362           .012976393
     363           .013012472
     364           .013048552
     365           .013084633
     366           .013120715
     367           .013156799
     368           .013192884
     369           .013228970
     370           .013265058
     371           .013301147
 Rev. Rul. 2003-111, 2003-45 I.R.B. 1009, 2003-2 C.B. 1009
Revenue Ruling 2003-122
Rev. Rul. 2003-122
Rev. Rul. 2003-122, 2003-49 I.R.B. 1179, 2003-2 C.B. 1179
                      Internal Revenue Service (I.R.S.)
                                Revenue Ruling
     FEDERAL RATES; ADJUSTED FEDERAL RATES; ADJUSTED FEDERAL LONG-TERM RATE
                         AND THE LONG-TERM EXEMPT RATE
                          Released: November 19, 2003
                          Published: December 8, 2003
 Section 42.–Low-Income Housing Credit
 The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2003.
Section 280G.–Golden Parachute Payments
 Federal short-term, mid-term, and long-term rates are set forth for the month of December 2003.
Section 382.–Limitation on Net Operating Loss Carryforwards and Certain Built-In Losses Following Ownership Change
 The adjusted applicable federal long-term rate is set forth for the month of December 2003.
Section 412.–Minimum Funding Standards
 The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2003.
Section 467.–Certain Payments for the Use of Property or Services
 The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2003.
Section 468.–Special Rules for Mining and Solid Waste Reclamation and Closing Costs
 The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2003.
Section 482.–Allocation of Income and Deductions Among Taxpayers
 Federal short-term, mid-term, and long-term rates are set forth for the month of December 2003.
Section 483.–Interest on Certain Deferred Payments
 The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2003.
Section 642.–Special Rules for Credits and Deductions
 Federal short-term, mid-term, and long-term rates are set forth for the month of December 2003.
Section 807.–Rules for Certain Reserves
 The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2003.
Section 846.–Discounted Unpaid Losses Defined
 The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2003.
Section 1288.–Treatment of Original Issue Discounts on Tax-Exempt Obligations
 The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2003.
Section 7520.–Valuation Tables
 The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2003.
Section 7872.–Treatment of Loans With Below-Market Interest Rates
 The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2003.
Section 1274.–Determination of Issue Price in the Case of Certain Debt Instruments Issued for Property
 Federal rates; adjusted federal rates; adjusted federal long-term rate and the long-term exempt rate. For purposes of sections 382, 1274, 1288, and other sections of the Code, tables set forth the rates for December 2003.
 Federal rates; adjusted federal rates; adjusted federal long-term rate and the long-term exempt rate. For purposes of sections 382, 1274, 1288, and other sections of the Code, tables set forth the rates for December 2003.
 This revenue ruling provides various prescribed rates for federal income tax purposes for December 2003 (the current month). Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(2) for buildings placed in service during the current month. Table 5 contains the federal rate for determining the present value of annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520. Finally, Table 6 contains the 2004 interest rate for sections 846 and 807.
——————————————————–
              REV. RUL. 2003-122 TABLE 1
   Applicable Federal Rates (AFR) for December 2003
                Period for Compounding
           Annual     Semiannual Quarterly Monthly
Short-Term
      AFR 1.68%      1.67%      1.67%     1.66%
 110% AFR 1.85%      1.84%      1.84%     1.83%
 120% AFR 2.01%      2.00%      2.00%     1.99%
 130% AFR 2.18%      2.17%      2.16%     2.16%
 Mid-Term
      AFR 3.55%      3.52%      3.50%     3.49%
 110% AFR 3.91%      3.87%      3.85%     3.84%
 120% AFR 4.26%      4.22%      4.20%     4.18%
 130% AFR 4.63%      4.58%      4.55%     4.54%
 150% AFR 5.35%      5.28%      5.25%     5.22%
 175% AFR 6.25%      6.16%      6.11%     6.08%
 Long-Term
      AFR 5.12%      5.06%      5.03%     5.01%
 110% AFR 5.65%      5.57%      5.53%     5.51%
 120% AFR 6.16%      6.07%      6.02%     5.99%
 130% AFR 6.69%      6.58%      6.53%     6.49%
——————————————————–
—————————————————————
                 REV. RUL. 2003-122 TABLE 2
               Adjusted AFR for December 2003
                   Period for Compounding
                        Annual Semiannual Quarterly Monthly
Short-term adjusted AFRÂ 1.37%Â Â 1.37%Â Â Â Â Â Â 1.37%Â Â Â Â Â 1.37%
Mid-term adjusted AFRÂ Â Â 2.75%Â Â 2.73%Â Â Â Â Â Â 2.72%Â Â Â Â Â 2.71%
Long-term adjusted AFRÂ Â 4.58%Â Â 4.53%Â Â Â Â Â Â 4.50%Â Â Â Â Â 4.49%
—————————————————————
——————————————————————————-
                         REV. RUL. 2003-122 TABLE 3
                  Rates Under Section 382 for December 2003
Adjusted federal long-term rate for the current month                    4.58%
Long-term tax-exempt rate for ownership changes during the current month 4.74%
 (the highest of the adjusted federal long-term rates for the current
 month and the prior two months.)
——————————————————————————-
——————————————————————————-
                         REV. RUL. 2003-122 TABLE 4
      Appropriate Percentages Under Section 42(b)(2) for December 2003
Appropriate percentage for the 70% present value low-income housing      8.01%
 credit
Appropriate percentage for the 30% present value low-income housing      3.43%
 credit
——————————————————————————-
——————————————————————————-
                         REV. RUL. 2003-122 TABLE 5
                  Rate Under Section 7520 for December 2003
Applicable federal rate for determining the present value of an annuity, Â 4.2%
 an interest for life or a term of years, or a remainder or reversionary
 interest
——————————————————————————-
——————————————————————————-
                         REV. RUL. 2003-122 TABLE 6
Applicable rate of interest for 2004 for purposes of section 846 and 807Â 4.82%
——————————————————————————-
 Rev. Rul. 2003-122, 2003-49 I.R.B. 1179, 2003-2 C.B. 1179
Revenue Ruling 2003-115
Rev. Rul. 2003-115
Rev. Rul. 2003-115, 2003-46 I.R.B. 1052, 2003-2 C.B. 1052
                      Internal Revenue Service (I.R.S.)
                                Revenue Ruling
     GROSS INCOME; COMPENSATION FOR INJURIES OR SICKNESS; DISASTER RELIEF
                                   PAYMENTS
                         Published: November 17, 2003
                          Released: October 29, 2003
 Section 104.–Compensation for Injuries or Sickness
 Taxpayers are informed of the tax treatment under sections 61, 104, 130, and 139 of periodic payments to claimants of the September 11th Victim Compensation Fund.
Section 130.–Certain Personal Injury Liability Assignments
 Taxpayers are informed of the tax treatment under sections 61, 104, 130, and 139 of periodic payments to claimants of the September 11th Victim Compensation Fund.
Section 139.–Disaster Relief Payments
 Taxpayers are informed of the tax treatment under sections 61, 104, 130, and 139 of periodic payments to claimants of the September 11th Victim Compensation Fund.
Section 451.–General Rule for Taxable Year of Inclusion, 26 CFR 1.451-2: Constructive receipt of income.
 Taxpayers are informed of the tax treatment under sections 61, 104, 130, and 139 of periodic payments to claimants of the September 11th Victim Compensation Fund.
Section 61.–Gross Income Defined, 26 CFR 1.61-1: Gross income.
 Gross income; compensation for injuries or sickness; disaster relief payments. Taxpayers are informed of the tax treatment under sections 61, 104, 130, and 139 of the Code of periodic payments to claimants of the September 11th Victim Compensation Fund.
 Gross income; compensation for injuries or sickness; disaster relief payments. Taxpayers are informed of the tax treatment under sections 61, 104, 130, and 139 of the Code of periodic payments to claimants of the September 11th Victim Compensation Fund.
ISSUES
 (1) Are periodic payments made to a claimant of the September 11th Victim Compensation Fund of 2001 (Fund) pursuant to an Award Determination Agreement among the claimant, the Special Master, and an assignment company (Agreement) excluded from the gross income of the claimant under ss 139(f) and 104(a)(2) of the Internal Revenue Code?
 (2) Is the amount transferred by the United States to an assignment company pursuant to an Agreement and in exchange for the assignment company’s assuming the United States’ obligation to make periodic payments to a claimant excluded from the gross income of the assignment company under s 130(a)?
FACTS
 On September 11, 2001, terrorist-related airline crashes occurred in New York, Virginia, and Pennsylvania. Following the attacks, the United States Government, under Title IV of the Air Transportation Safety and System Stabilization Act (Act), Pub. L. No. 107-42, 115 Stat. 230 (2001), created the Fund. The Act authorizes an award of compensation to any individual physically injured and to the personal representative of any individual killed as a result of the September 11th terrorist-related airline crashes.
 To receive an award, a claimant must file a claim with the Fund no later than December 22, 2003. The Special Master, appointed under section 404 of the Act to administer the Fund, reviews the claim and notifies the claimant of any additional information needed to process the claim. Once the Special Master receives sufficient information to make an initial evaluation of the claim, the Special Master determines the claim to be substantially complete and notifies the claimant by letter. When a claim is determined to be substantially complete, the claimant is deemed to have waived any right to file a civil action or be a party to an action in any federal or state court for damages sustained as a result of the September 11, 2001, airline crashes, except to recover collateral-source obligations or to recover from a person who is a knowing participant in a conspiracy to hijack an aircraft.
 The Special Master, within 120 days of his determination that the claimant’s application is substantially complete, must determine (1) whether the claimant is entitled to an award and (2) the amount of the award. Once the Special Master makes an award determination, the claimant is notified in writing. The claimant then has 21 days to either accept the award determination or appeal it by requesting a hearing before the Special Master. Alternatively, a claimant, following the submission of a claim, may proceed directly to a hearing process for purposes of determining the award amount.
 The amount of an award is affected by a number of factors including whether the claimant received an insurance or workers’ compensation award as a result of either injuries incurred by, or the death of, the victim from the attack; the income of the victim; the nature, severity and duration of the victim’s injuries resulting from the attack; the size of the victim’s household, including the number of surviving dependents; and the victim’s age. The particular needs of a claimant also may be taken into account in determining the award amount.
 The Special Master allows a claimant to make an election to receive an award in the form of periodic payments instead of a lump sum payment. The claimant, however, must elect periodic payments before the Special Master issues the letter notifying the claimant that his or her claim is substantially complete. If a claimant who applies for advance benefits as provided by the Fund desires periodic payments, the claimant must elect periodic payments when he or she files the form applying for advance benefits. An election may not be revoked by the claimant.
 When electing to receive periodic payments, the claimant may choose to receive the entire award in periodic payments, or only a portion of the award in periodic payments with the remainder to be received as a single payment. Further, at the time the claimant elects periodic payments, the claimant must choose the period of time over which the payments are to be made and the frequency of payments during that period. For example, a claimant may choose to receive his or her award in monthly payments over twenty years or in monthly payments over the claimant’s lifetime. Finally, all periodic payments must be of an equal amount unless the claimant specifies otherwise at the time he or she elects to receive periodic payments.
 If a claimant chooses to receive all or a portion of the award in periodic payments, and if the Special Master determines that the claimant is entitled to an award, then the terms of the award are set forth in an Agreement. Each Agreement sets forth the amount to be paid and the frequency and duration of the payments. In addition, an Agreement may state that, if the claimant dies before the entire interest is distributed, the remaining payments are payable to the claimant’s estate or to a secondary beneficiary duly designated by the claimant during the claimant’s lifetime. Each Agreement provides that no payee or beneficiary shall have the right or power to transfer, mortgage, encumber or anticipate the periodic payments, by assignment or otherwise.
 Each Agreement also includes an assignment by the Special Master of the United States’ periodic payment obligation to, and an assumption of that obligation by, an assignment company in exchange for a payment from the United States to the assignment company. Each Agreement provides that the assignment company’s periodic payment obligation is equal to the periodic payment obligation of the United States prior to the assignment, and that the periodic payments cannot be accelerated, deferred, increased, or decreased by the claimant or any beneficiary or payee. Each Agreement allows the assignment company to fund its obligation to make periodic payments through the purchase of an annuity contract that complies with the requirements set forth in s 130(d) for a qualified funding asset. Under an Agreement, the assignment company is the owner of the annuity, which is subject to claims of the general creditors of the assignment company.
LAW AND ANALYSIS
Issue 1
 The first issue concerns whether periodic payments made to a claimant of the Fund pursuant to an Agreement are excluded from the gross income of the claimant under s 139(f) and s 104(a)(2).
 Section 61 provides that, except as otherwise provided by the Code, gross income includes all income from whatever source derived.
 Section 139(f) provides that gross income does not include “any amount received as payment under section 406 of the Air Transportation Safety and System Stabilization Act.” The s 139(f) exclusion applies to amounts paid to claimants in the form of a lump sum or periodic payments.
 Section 104(a)(2) provides that gross income does not include the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as a lump sum or as periodic payments) on account of personal physical injuries or physical sickness.
 Neither s 139(f) nor s 104(a)(2) excludes from gross income amounts that are earned from the investment by the claimant of a lump sum amount received as either payment under section 406 of the Act or damages on account of personal physical injuries or physical sickness, respectively. If such a lump sum payment is invested for the benefit of a claimant who has actual or constructive receipt, or the economic benefit, of the lump sum payment, only the lump sum payment is excluded from gross income, and none of the income from the investment of the lump sum payment is excludable from the claimant’s gross income. Rev. Rul. 65-29, 1965-1 C.B. 59.
 Section 1.451-2 of the Income Tax Regulations provides rules relating to constructive receipt. Under s 1.451-2(a), an amount is constructively received in the taxable year in which such amount is credited to a taxpayer’s account, set apart for the taxpayer, or otherwise made available so that the taxpayer may draw upon it at any time if notice of intention is given. Income is not constructively received if the taxpayer’s control of receipt of the amount is subject to substantial limitations or restrictions. Section 1.451- 2(a).
 The economic benefit doctrine, developed in case law, provides that if a promise to pay an amount is funded and secured by the payor, and the payee is not required to do anything other than wait for the payments, an economic benefit is considered to have been conferred on the payee and the amount of such benefit is considered to have been received. In Sproull v. Commissioner, 16 T.C. 244 (1951), aff’d., 194 F.2d 541 (6th Cir. 1952), the court found that an economic benefit had been conferred on a taxpayer when the taxpayer’s employer established a trust to compensate the taxpayer for past services. In 1945, the employer transferred money to the trust to be paid to the taxpayer in 1946 and 1947. The taxpayer was the trust’s sole beneficiary. The court held that the taxpayer received compensation in 1945 in an amount equal to the value of the amount transferred to the trust for the taxpayer’s benefit because such transfer to the trust provided the taxpayer with an economic benefit.
 Not all rights to receive periodic payments, however, trigger application of the economic benefit doctrine. Rev. Rul. 79-220, 1979-2 C.B. 74, concludes that a right to receive certain periodic payments under the facts of the ruling does not confer an economic benefit on the recipient. In Rev. Rul. 79-220, a taxpayer entered into a settlement with an insurance company for the periodic payment of nontaxable damages for an agreed period. The taxpayer was given no immediate right to a lump sum amount and no control of the investment of the amount set aside to fund the insurance company’s obligation. The insurance company funded its obligation with an annuity payable directly to the taxpayer. The insurance company, as owner of the annuity, had all rights to the annuity and the annuity was subject to the claims of the general creditors of the insurance company. The ruling concludes that all of the periodic payments are excluded from the taxpayer’s gross income under s 104(a)(2) because the taxpayer did not receive, or have the economic benefit of, the lump sum amount used to fund the annuity. Further, the ruling holds that if the taxpayer dies before the end of the agreed period, the payments made to the taxpayer’s estate under the settlement agreement are also excludable from the gross income of the estate under s 104(a)(2).
 With respect to a claimant of the Fund, the award claim procedure requires the claimant to make an irrevocable election relating to periodic payments while the claimant’s control of receipt of payments is subject to substantial limitations or restrictions. Consequently, the claimant is not in constructive receipt of a lump sum amount. Further, no economic benefit of a lump sum has been conferred on the claimant by the Agreement. The assignment company making the periodic payments to the claimant may fund its obligation with an annuity to which the assignment company has all rights and that it continues to own. The periodic payments under the Agreement are, therefore, amounts “received as payment under section 406 of the Air Transportation Safety and System Stabilization Act” and thus excluded from the claimant’s gross income under s 139(f). Moreover, the payments are excluded from the claimant’s gross income under s 104(a)(2) as damages received on account of personal physical injuries or physical sickness. Finally, any payments to a successor beneficiary pursuant to the Agreement are excludable from the gross income of the successor beneficiary under ss 104(a)(2) and 139(f).
Issue 2
 The second issue concerns whether the amount transferred by the United States to an assignment company in exchange for the assignment company assuming the United States’ obligation to make periodic payments to a claimant is excluded from the assignment company’s gross income under s 130(a). Section 130 provides tax-favored treatment to certain structured settlement arrangements. Under s 130(a), any amount received for agreeing to a qualified assignment is excluded from the gross income of the assignee to the extent such amount does not exceed the aggregate cost of any qualified funding assets. Section 130(c) defines a qualified assignment as any assignment of a liability to make periodic payments as damages (whether by suit or agreement) on account of personal injury or sickness (in a case involving physical injury or physical sickness), provided the liability is assumed from a person who is a party to the suit or agreement, and the terms of the assignment satisfy the following requirements–
   (1) the periodic payments must be fixed and determinable as to amount and time of payment;
   (2) the periodic payments cannot be accelerated, deferred, increased, or decreased by the recipient of such payments;
   (3) the assignee’s obligation on account of the personal injuries or sickness must be no greater than the obligation of the person who assigned the liability; and
   (4) the periodic payments must be excludable from the gross income of the recipient under s 104(a)(1) or (2).
 Under s 130(d), a qualified funding asset means any annuity contract issued by an insurance company licensed in the United States, or any obligation of the United States, meeting the requirements set forth in s 130(d)(1) through (4).
 Each Agreement meets the requirements set forth in s 130(c)(1) through (4). Moreover, the Special Master is considered a person who is a party to a suit or agreement because the Fund was created to compensate the victims of the terrorist attack. Accordingly, any payment by the United States to the assignment company for agreeing to a qualified assignment is excluded from the assignment company’s gross income under s 130 to the extent such amount does not exceed the aggregate cost of any qualified funding assets purchased by the assignment company to fund the payment obligation assumed by it.
HOLDINGS
 Under the facts of this revenue ruling:
 (1) Periodic payments made to a claimant of the Fund pursuant to an Agreement are excluded from the gross income of the claimant under ss 139(f) and 104(a)(2). Similarly, any payments to an estate or secondary beneficiary pursuant to an Agreement are excluded from the gross income of the successor beneficiary under ss 104(a)(2) and 139(f).
 (2) The amount transferred by the United States to an assignment company pursuant to an Agreement and in exchange for the assignment company’s assuming the United States’ obligation to make periodic payments to a claimant is excluded from the gross income of the assignment company under s 130(a) to the extent the amount transferred does not exceed the aggregate cost of any qualified funding asset purchased by the assignment company to fund the periodic payment obligation.
GRACE PERIODS FOR CERTAIN CLAIMANTS
 Any claimant of the Fund who has been notified by the Special Master that his or her claim is substantially complete (or who has applied to receive advance benefits) but who has not made an election relating to periodic payments (including specifying the period of time over which the payments are to be made, the frequency of such payments, and, if the claimant so desires, a periodic-payment stream other than equal payments) may make such election and rely on this revenue ruling provided the claimant makes his or her election before the earlier of (1) December 17, 2003, or (2) the date the Special Master issues the claimant’s award determination letter.
 In addition, a claimant may rely on this revenue ruling if: (1) before issuance of the claimant’s award determination letter, the claimant informed the Special Master of the claimant’s wish to receive periodic payments but provided no information regarding the period or frequency of such payments (and, if desired, a periodic-payment stream other than equal payments); (2) before October 28, 2003, the Special Master confirmed in writing that the claimant so informed the Special Master; and (3) the claimant provides the additional information required to perfect his or her election by December 2, 2003.
DRAFTING INFORMATION
 The author of the revenue ruling is Shareen S. Pflanz of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, please call Shareen Pflanz or Stephen Toomey at (202) 622-4920 (not a toll-free call).
 Rev. Rul. 2003-115, 2003-46 I.R.B. 1052, 2003-2 C.B. 1052
Revenue Ruling 2003-118
Rev. Rul. 2003-118
Rev. Rul. 2003-118, 2003-47 I.R.B. 1095, 2003-2 C.B. 1095
                      Internal Revenue Service (I.R.S.)
                                Revenue Ruling
                 CPI ADJUSTMENT FOR BELOW-MARKET LOANS FOR 2004
                          Released: November 11, 2003
                         Published: November 24, 2003
 Section 7872.–Treatment of Loans With Below-Market Interest Rates
 CPI adjustment for below-market loans for 2004. The amount that section 7872(g) of the Code permits a taxpayer to lend to a qualified continuing care facility without incurring imputed interest is published and adjusted for inflation for years 1987-2004. Rev. Rul. 2002-78 supplemented and superseded.
 CPI adjustment for below-market loans for 2004. The amount that section 7872(g) of the Code permits a taxpayer to lend to a qualified continuing care facility without incurring imputed interest is published and adjusted for inflation for years 1987-2004. Rev. Rul. 2002-78 supplemented and superseded.
 This revenue ruling publishes the amount that s 7872(g) of the Internal Revenue Code permits a taxpayer to lend to a qualifying continuing care facility without incurring imputed interest. The amount is adjusted for inflation for the years after 1986.
 Section 7872 generally treats loans bearing a below-market interest rate as if they bore interest at the market rate.
 Section 7872(g)(1) provides that, in general, s 7872 does not apply for any calendar year to any below-market loan made by a lender to a qualified continuing care facility pursuant to a continuing care contract if the lender (or the lender’s spouse) attains age 65 before the close of the year.
 Section 7872(g)(2) provides that, in the case of loans made after October 11, 1985, and before 1987, s 7872(g)(1) applies only to the extent that the aggregate outstanding amount of any loan to which s 7872(g) applies (determined without regard to s 7872(g)(2)), when added to the aggregate outstanding amount of all other previous loans between the lender (or the lender’s spouse) and any qualified continuing care facility to which s 7872(g)(1) applies, does not exceed $90,000.
 Section 7872(g)(5) provides that, for loans made during any calendar year after 1986 to which s 7872(g)(1) applies, the $90,000 limit specified in s 7872(g)(2) is increased by an inflation adjustment. The inflation adjustment for any calendar year is the percentage (if any) by which the Consumer Price Index (CPI) for the preceding calendar year exceeds the CPI for calendar year 1985. Section 7872(g)(5) states that the CPI for any calendar year is the average of the CPI as of the close of the 12-month period ending on September 30 of that calendar year.
 Table 1 sets forth the amount specified in s 7872(g)(2) of the Code. The amount is increased by the inflation adjustment for the years 1987-2004.
——————————————————————————-
                             REV. RUL. 2003-118
                                   TABLE 1
                          Limit under s 7872(g)(2)
             Year                                                      Amount
———————————Â ——————————————–
          Before 1987                                                 $90,000
             1987                                                     $92,200
             1988                                                     $94,800
             1989                                                     $98,800
             1990                                                    $103,500
             1991                                                    $108,600
             1992                                                    $114,100
             1993                                                    $117,500
             1994                                                    $121,100
             1995                                                    $124,300
             1996                                                    $127,800
             1997                                                    $131,300
             1998                                                    $134,800
             1999                                                    $137,000
             2000                                                    $139,700
             2001                                                    $144,100
             2002                                                    $148,800
             2003                                                    $151,000
             2004                                                    $154,500
——————————————————————————-
Note: These inflation adjustments were computed using the All-Urban, Consumer
 Price Index 1982-1984 base, published by the Bureau of Labor Statistics.
——————————————————————————-
EFFECT ON OTHER DOCUMENTS
 Rev. Rul. 2002-78, 2002-2 C.B. 915, is supplemented and superseded.
DRAFTING INFORMATION
 The author of this revenue ruling is Avital Grunhaus of the Office of the Associate Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling, please contact Mrs. Grunhaus at (202) 622-3930 (not a toll-free call).
 Rev. Rul. 2003-118, 2003-47 I.R.B. 1095, 2003-2 C.B. 1095
Revenue Ruling 2003-119
Rev. Rul. 2003-119
Rev. Rul. 2003-119, 2003-47 I.R.B. 1094, 2003-2 C.B. 1094
                      Internal Revenue Service (I.R.S.)
                                Revenue Ruling
              SECTION 1274A — INFLATION ADJUSTED NUMBERS FOR 2004
                          Released: November 11, 2003
                         Published: November 24, 2003
 Section 483.–Interest on Certain Deferred Payments, 26 CFR 1.483-1: Computation of interest on certain deferred payments.
 As defined by section 1274A, the definitions for both “qualified debt instruments” and “cash method debt instruments” have dollar ceilings on the stated principal amount. The limits to the stated principal amount are adjusted for inflation for sales or exchanges occurring in the 2004 calendar year.
Section 1274.–Determination of Issue Price in the Case of Certain Debt Instruments Issued for Property, 26 CFR 1.1274A-1: Special rules for certain transactions where stated principal amount does not exceed $2,800,000.
 As defined by section 1274A, the definitions for both “qualified debt instruments” and “cash method debt instruments” have dollar ceilings on the stated principal amount. The limits to the stated principal amount are adjusted for inflation for sales or exchanges occurring in the 2004 calendar year.
Section 1274A.–Special Rules for Certain Transactions Where Stated Principal Amount Does Not Exceed $2,800,000
 Section 1274A — inflation adjusted numbers for 2004. This ruling provides the dollar amounts, increased by the 2004 inflation adjustment, for section 1274A of the Code. Rev. Rul. 2002-79 supplemented and superseded.
 Section 1274A — inflation adjusted numbers for 2004. This ruling provides the dollar amounts, increased by the 2004 inflation adjustment, for section 1274A of the Code, Rev. Rul. 2002-79 supplemented and superseded.
 This revenue ruling provides the dollar amounts, increased by the 2004 inflation adjustment, for s 1274A of the Internal Revenue Code.
BACKGROUND
 In general, ss 483 and 1274 determine the principal amount of a debt instrument given in consideration for the sale or exchange of nonpublicly traded property. In addition, any interest on a debt instrument subject to s 1274 is taken into account under the original issue discount provisions of the Code. Section 1274A, however, modifies the rules under ss 483 and 1274 for certain types of debt instruments.
 In the case of a “qualified debt instrument,” the discount rate used for purposes of ss 483 and 1274 may not exceed 9 percent, compounded semiannually. Section 1274A(b) defines a qualified debt instrument as any debt instrument given in consideration for the sale or exchange of property (other than new s 38 property within the meaning of s 48(b), as in effect on the day before the date of enactment of the Revenue Reconciliation Act of 1990) if the stated principal amount of the instrument does not exceed the amount specified in s 1274A(b). For debt instruments arising out of sales or exchanges before January 1, 1990, this amount is $2,800,000.
 In the case of a “cash method debt instrument,” as defined in s 1274A(c), the borrower and lender may elect to use the cash receipts and disbursements method of accounting. In particular, for any cash method debt instrument, s 1274 does not apply, and interest on the instrument is accounted for by both the borrower and the lender under the cash method of accounting. A cash method debt instrument is a qualified debt instrument that meets the following additional requirements: (A) In the case of instruments arising out of sales or exchanges before January 1, 1990, the stated principal amount does not exceed $2,000,000; (B) the lender does not use an accrual method of accounting and is not a dealer with respect to the property sold or exchanged; (C) s 1274 would have applied to the debt instrument but for an election under s 1274A(c); and (D) an election under s 1274A(c) is jointly made with respect to the debt instrument by the borrower and lender. Section 1.1274A-1(c)(1) of the Income Tax Regulations provides rules concerning the time for, and manner of, making this election.
 Section 1274A(d)(2) provides that, for any debt instrument arising out of a sale or exchange during any calendar year after 1989, the dollar amounts stated in s 1274A(b) and s 1274A(c)(2)(A) are increased by the inflation adjustment for the calendar year. Any increase due to the inflation adjustment is rounded to the nearest multiple of $100 (or, if the increase is a multiple of $50 and not of $100, the increase is increased to the nearest multiple of $100). The inflation adjustment for any calendar year is the percentage (if any) by which the CPI for the preceding calendar year exceeds the CPI for calendar year 1988. Section 1274A(d)(2)(B) defines the CPI for any calendar year as the average of the Consumer Price Index as of the close of the 12-month period ending on September 30 of that calendar year.
INFLATION-ADJUSTED AMOUNTS
 For debt instruments arising out of sales or exchanges after December 31, 1989, the inflation-adjusted amounts under s 1274A are shown in Table 1.
——————————————————————————-
                         REV. RUL. 2003-119 TABLE 1
                  Inflation-Adjusted Amounts Under s 1274A
 Calendar Year of   1274A(b) Amount (qualified   1274A(c)(2)(A) Amount (cash
 Sale or Exchange        debt instrument)          method debt instrument)
——————————————————————————-
      1990                 $2,933,200                   $2,095,100
      1991                 $3,079,600                   $2,199,700
      1992                 $3,234,900                   $2,310,600
      1993                 $3,332,400                   $2,380,300
      1994                 $3,433,500                   $2,452,500
      1995                 $3,523,600                   $2,516,900
      1996                 $3,622,500                   $2,587,500
      1997                 $3,723,800                   $2,659,900
      1998                 $3,823,100                   $2,730,800
      1999                 $3,885,500                   $2,775,400
      2000                 $3,960,100                   $2,828,700
      2001                 $4,085,900                   $2,918,500
      2002                 $4,217,500                   $3,012,500
      2003                 $4,280,800                   $3,057,700
      2004                 $4,381,300                   $3,129,500
——————————————————————————-
Note: These inflation adjustments were computed using the All-Urban, Consumer
 Price Index, 1982-1984 base, published by the Bureau of Labor Statistics.
——————————————————————————-
EFFECT ON OTHER DOCUMENTS
 Rev. Rul. 2002-79, 2002-2 C.B. 908, is supplemented and superseded.
DRAFTING INFORMATION
 The author of this revenue ruling is Avital Grunhaus of the Office of the Associate Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling, please contact Mrs. Grunhaus at (202) 622-3930 (not a toll-free call).
 Rev. Rul. 2003-119, 2003-47 I.R.B. 1094, 2003-2 C.B. 1094
Revenue Ruling 2003-113
Rev. Rul. 2003-113
Rev. Rul. 2003-113, 2003-44 I.R.B. 962, 2003-2 C.B. 962
                      Internal Revenue Service (I.R.S.)
                                Revenue Ruling
                    LIFO; PRICE INDEXES; DEPARTMENT STORES
                          Published: November 3, 2003
 Section 472.–Last-in, First-out Inventories, 26 CFR 1.472-1: Last-in, first-out inventories.
 LIFO; price indexes; department stores. The August 2003 Bureau of Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in, first-out inventory methods for valuing inventories for tax years ended on, or with reference to, August 31, 2003.
 LIFO; price indexes; department stores. The August 2003 Bureau of Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in, first-out inventory methods for valuing inventories for tax years ended on, or with reference to, August 31, 2003.
 The following Department Store Inventory Price Indexes for August 2003 were issued by the Bureau of Labor Statistics. The indexes are accepted by the Internal Revenue Service, under s 1.472-1(k) of the Income Tax Regulations and Rev. Proc. 86-46, 1986-2 C.B. 739, for appropriate application to inventories of department stores employing the retail inventory and last-in, first-out inventory methods for tax years ended on, or with reference to, August 31, 2003.
 The Department Store Inventory Price Indexes are prepared on a national basis and include (a) 23 major groups of departments, (b) three special combinations of the major groups — soft goods, durable goods, and miscellaneous goods, and (c) a store total, which covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco, and contract departments.
   BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY
                              DEPARTMENT GROUPS
                (January 1941 = 100, unless otherwise noted)
                     Groups             Aug. 2002   Aug. 2003    Percent
                                                                     Change
                                                                   from Aug.
                                                                    2002 to
                                                                   Aug. 2003
                                                                     [FN1]
——————————————————————————-
1.        Piece Goods ………………….. 481.8       488.9          1.5
2.        Domestics and Draperies ……….. 577.9       568.7         -1.6
3.        Women’s and Children’s Shoes …… 634.4       631.4         -0.5
4.        Men’s Shoes ………………….. 892.1       838.8         -6.0
5.        Infants’ Wear ………………… 600.1       589.1         -1.8
6.        Women’s Underwear …………….. 532.7       510.7         -4.1
7.        Women’s Hosiery ………………. 342.7       347.8          1.5
8.        Women’s and Girls’
            Accessories ………………… 523.9       551.0          5.2
9.        Women’s Outerwear and Girls’
            Wear ………………………. 361.5       350.2         -3.1
10.       Men’s Clothing ……………….. 563.8       528.7         -6.2
11.       Men’s Furnishings …………….. 589.4       565.6         -4.0
12.       Boys’ Clothing and
            Furnishings ………………… 439.2       423.3         -3.6
13.       Jewelry ……………………… 887.0       880.6         -0.7
14.       Notions ……………………… 793.2       787.1         -0.8
15.       Toilet Articles and Drugs ……… 969.2       979.8          1.1
16.       Furniture and Bedding …………. 623.9       619.8         -0.7
17.       Floor Coverings ………………. 621.3       588.7         -5.2
18.       Housewares …………………… 749.4       720.4         -3.9
19.       Major Appliances ……………… 221.8       209.7         -5.5
20.       Radio and Television …………… 47.9        45.0         -6.1
21. Â Â Â Â Â Â Â Recreation and Education
            [FN2] ………………………. 85.7        82.3         -4.0
22.       Home Improvements [FN2] ……….. 125.4       124.2         -1.0
23.       Automotive Accessories [FN2] …… 111.8       111.7         -0.1
Groups 1-15: Soft Goods …………………. 565.9Â Â Â Â Â Â Â 553.5Â Â Â Â Â Â Â Â Â -2.2
Groups 16-20: Durable Goods ……………… 408.4Â Â Â Â Â Â Â 392.1Â Â Â Â Â Â Â Â Â -4.0
Groups 21-23: Misc. Goods [FN2] …………… 96.2Â Â Â Â Â Â Â Â 93.8Â Â Â Â Â Â Â Â Â -2.5
          Store Total [FN3] …………….. 508.3       495.2         -2.6
FN1. Absence of a minus sign before the percentage change in this column
 signifies a price increase.
FN2. Indexes on a January 1986 = 100 base.
FN3. The store total index covers all departments, including some not listed
 separately, except for the following: candy, food, liquor, tobacco and
 contract departments.
DRAFTING INFORMATION
 The principal author of this revenue ruling is Michael Burkom of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Mr. Burkom at (202) 622- 7924 (not a toll-free call).
 Rev. Rul. 2003-113, 2003-44 I.R.B. 962, 2003-2 C.B. 962
Revenue Ruling 2003-110
Rev. Rul. 2003-110
Rev. Rul. 2003-110, 2003-46 I.R.B. 1083, 2003-2 C.B. 1083
                      Internal Revenue Service (I.R.S.)
                                Revenue Ruling
                      STOCKS AND SECURITIES; DISTRIBUTION
                         Published: November 17, 2003
                          Released: October 24, 2003
 Section 355.–Distribution of Stock and Securities of a Controlled Corporation, 26 CFR 1.355-2: Business purpose.
 Stocks and securities; distribution. This ruling concludes that, in determining whether a distribution of controlled corporation stock satisfies the business purpose requirement of regulations section 1.355-2(b), the fact that the distribution avoids gain recognition under section 311(b) of the Code does not present a potential for avoidance of federal income tax.
 Stocks and securities; distribution. This ruling concludes that, in determining whether a distribution of controlled corporation stock satisfies the business purpose requirement of regulations section 1.355-2(b), the fact that the distribution avoids gain recognition under section 311(b) of the Code does not present a potential for avoidance of federal income tax.
ISSUE
 In determining whether a distribution of the stock of a controlled corporation satisfies the business purpose requirement of s 1.355-2(b) of the Income Tax Regulations that the distribution be motivated, in whole or substantial part, by one or more corporate business purposes, does the fact that s 355 of the Internal Revenue Code permits a distributing corporation to distribute the stock of a controlled corporation without recognition of gain present a potential for the avoidance of Federal taxes under s 1.355-2(b)?
FACTS
 Distributing is a publicly traded corporation that conducts a pesticides business. Controlled, a wholly owned subsidiary of Distributing, conducts a baby foods business. The pesticides business formulates, manufactures, and markets pesticides for agricultural use. The baby foods business processes and markets baby foods.
 A significant number of potential customers of the baby foods business refuse to buy from Controlled because of its affiliation with Distributing and its pesticides business. Distributing’s management consultant has advised Distributing that separating Controlled from Distributing would relieve the baby foods business of the adverse market perception caused by its association with the pesticides business.
 To solve the market perception problem, Distributing distributes the Controlled stock to Distributing’s shareholders, pro rata. There is no other nontaxable solution to the problem. Sale of the Controlled stock by Distributing would have resulted in recognition of gain. Distributing’s directors expect that the baby foods business will benefit in a real and substantial way from the improved market perception produced by the separation.
 Apart from the issue of whether the business purpose requirement of s 1.355-2(b) is satisfied, the distribution of the Controlled stock meets all the requirements of s 355.
LAW
 Section 355 provides that if certain requirements are met, a corporation may distribute stock and securities in a controlled corporation to its shareholders and security holders without causing the distributing corporation or the distributees to recognize gain or loss or include any amount in income.
 To qualify as a distribution described in s 355, a distribution must, in addition to satisfying the statutory requirements of s 355, satisfy certain requirements in the regulations, including the business purpose requirement. Section 1.355-2(b)(1) provides that a distribution must be motivated, in whole or substantial part, by one or more corporate business purposes. A corporate business purpose is a real and substantial non-Federal tax purpose germane to the business of the distributing corporation, the controlled corporation, or the affiliated group to which the distributing corporation belongs. Section 1.355-2(b)(2). The potential for the avoidance of Federal taxes by the distributing or controlled corporation (or a corporation controlled by either) is relevant in determining the extent to which an existing corporate business purpose motivated the distribution. Section 1.355-2(b)(1). The principal reason for the business purpose requirement is to provide nonrecognition treatment only to distributions that are incident to readjustments of corporate structures required by business exigencies and that effect only readjustments of continuing interests in property under modified corporate forms. Section 1.355-2(b)(1). If a corporate business purpose can be achieved through a nontaxable transaction that does not involve the distribution of stock of a controlled corporation and that is neither impractical nor unduly expensive, then the separation is not carried out for that corporate business purpose. Section 1.355-2(b)(3).
 Section 355(c) provides that no gain or loss will be recognized by a corporation on any distribution to which s 355 (or so much of s 356 as relates to s 355) applies. See also s 361(c) (to the same effect if the distribution is pursuant to a plan of reorganization). Absent s 355, such a distribution would be subject to s 311(b), which provides that, if the fair market value of the distributed property exceeds its adjusted basis, then gain will be recognized by the distributing corporation as if the property had been sold to the distributee at its fair market value. Section 355(c)(3).
ANALYSIS
 To satisfy the business purpose requirement, a distribution must be motivated, in whole or substantial part, by one or more corporate business purposes. Section 1.355-2(b)(1). The market perception business purpose motivates Distributing’s directors to approve the distribution, there is no other nontaxable transaction that would solve the market perception problem, and it is expected that the baby foods business will benefit in a real and substantial way from the improved market perception produced by the separation.
 Except as provided in s 355(d) and (e), the application of s 355(c) or s 361(c) to distributions that qualify under s 355 is part of the statutory scheme of s 355 and implicit in all such distributions. Accordingly, the fact that s 355 permits a distributing corporation to distribute the stock of a controlled corporation without the recognition of gain does not present a potential for the avoidance of Federal taxes under s 1.355-2(b). This is further implied by s 1.355-2(b)(3), which provides that the business purpose requirement is not satisfied if the purpose can be achieved through a nontaxable alternative transaction. That is, the distributing corporation is entitled to reject a taxable disposition in favor of a tax-free distribution.
 Therefore, although the distribution of Controlled stock results in the nonrecognition of gain that otherwise would be recognized under s 311(b) if s 355(c) did not apply, the distribution is motivated in whole by a real and substantial non-Federal tax purpose germane to the business of Distributing. Hence, the business purpose requirement of s 1.355-2(b) is satisfied.
HOLDING
 In determining whether a distribution of the stock of a controlled corporation satisfies the business purpose requirement of s 1.355-2(b) that the distribution be motivated, in whole or substantial part, by one or more corporate business purposes, the fact that s 355 permits a distributing corporation to distribute the stock of a controlled corporation without recognition of gain does not present a potential for the avoidance of Federal taxes under s 1.355-2(b).
DRAFTING INFORMATION
 The principal author of this revenue ruling is Wayne T. Murray of the Office of Associate Chief Counsel (Corporate). For further information regarding this revenue ruling, contact Mr. Murray at (202) 622-7700 (not a toll-free call).
 Rev. Rul. 2003-110, 2003-46 I.R.B. 1083, 2003-2 C.B. 1083
Revenue Ruling 2003-124
Rev. Rul. 2003-124
Rev. Rul. 2003-124, 2003-49 I.R.B. 1173, 2003-2 C.B. 1173
                      Internal Revenue Service (I.R.S.)
                                Revenue Ruling
                       COVERED COMPENSATION TABLES; 2004
                          Released: November 21, 2003
                          Published: December 8, 2003
 Section 401.–Qualified Pension, Profit-Sharing, and Stock Bonus Plans, 26 CFR 1.401(l)-1: Permitted disparity in employer-provided contributions or benefits.
 Covered compensation tables; 2004. The covered compensation tables under section 401 of the Code for the year 2004 are provided for use in determining contributions to defined benefit plans and permitted disparity.
 Covered compensation tables; 2004. The covered compensation tables under section 401 of the Code for the year 2004 are provided for use in determining contributions to defined benefit plans and permitted disparity.
 This revenue ruling provides tables of covered compensation under s 401(l) (5)(E) of the Internal Revenue Code (the “Code”) and the Income Tax Regulations, thereunder, for the 2004 plan year.
 Section 401(l)(5)(E)(i) defines covered compensation with respect to an employee, as the average of the contribution and benefit bases in effect under section 230 of the Social Security Act (the “Act”) for each year in the 35-year period ending with the year in which the employee attains social security retirement age.
 Section 401(l)(5)(E)(ii) of the Code states that the determination for any year preceding the year in which the employee attains social security retirement age shall be made by assuming that there is no increase in covered compensation after the determination year and before the employee attains social security retirement age.
 Section 1.401(l)-1(c)(34) defines the taxable wage base as the contribution and benefit base under section 230 of the Act.
 Section 1.401(l)-1(c)(7)(i) defines covered compensation for an employee as the average (without indexing) of the taxable wage bases in effect for each calendar year during the 35-year period ending with the last day of the calendar year in which the employee attains (or will attain) social security retirement age. A 35-year period is used for all individuals regardless of the year of birth of the individual. In determining an employee’s covered compensation for a plan year, the taxable wage base for all calendar years beginning after the first day of the plan year is assumed to be the same as the taxable wage base in effect as of the beginning of the plan year. An employee’s covered compensation for a plan year beginning after the 35-year period applicable under s 1.401(l)-1(c)(7)(i) is the employee’s covered compensation for a plan year during which the 35-year period ends. An employee’s covered compensation for a plan year beginning before the 35-year period applicable under s 1.401(l)-1(c)(7)(i) is the taxable wage base in effect as of the beginning of the plan year.
 Section 1.401(l)-1(c)(7)(ii) provides that, for purposes of determining the amount of an employee’s covered compensation under s 1.401(l)-1(c)(7)(i), a plan may use tables, provided by the Commissioner, that are developed by rounding the actual amounts of covered compensation for different years of birth.
 For purposes of determining covered compensation for the 2004 year, the taxable wage base is $87,900.
 The following tables provide covered compensation for 2004:
                       2004 COVERED COMPENSATION TABLE
CALENDAR YEAR OF BIRTHÂ CALENDAR YEAR OF SOCIALÂ Â Â 2004 COVERED COMPENSATION
                         SECURITY RETIREMENT               TABLE
                                 AGE
        1907                   1972                                   $4,488
        1908                   1973                                    4,704
        1909                   1974                                    5,004
        1910                   1975                                    5,316
        1911                   1976                                    5,664
        1912                   1977                                    6,060
        1913                   1978                                    6,480
        1914                   1979                                    7,044
        1915                   1980                                    7,692
        1916                   1981                                    8,460
        1917                   1982                                    9,300
        1918                   1983                                   10,236
        1919                   1984                                   11,232
        1920                   1985                                   12,276
        1921                   1986                                   13,368
        1922                   1987                                   14,520
        1923                   1988                                   15,708
        1924                   1989                                   16,968
        1925                   1990                                   18,312
        1926                   1991                                   19,728
        1927                   1992                                   21,192
        1928                   1993                                   22,716
        1929                   1994                                   24,312
        1930                   1995                                   25,920
        1931                   1996                                   27,576
        1932                   1997                                   29,304
        1933                   1998                                   31,128
        1934                   1999                                   33,060
        1935                   2000                                   35,100
        1936                   2001                                   37,212
        1937                   2002                                   39,444
        1938                   2004                                   43,992
        1939                   2005                                   46,284
        1940                   2006                                   48,576
        1941                   2007                                   50,832
        1942                   2008                                   53,028
        1943                   2009                                   55,164
        1944                   2010                                   57,276
        1945                   2011                                   59,352
        1946                   2012                                   61,392
        1947                   2013                                   63,396
        1948                   2014                                   65,256
        1949                   2015                                   67,020
        1950                   2016                                   68,688
        1951                   2017                                   70,272
        1952                   2018                                   71,760
        1953                   2019                                   73,200
        1954                   2020                                   74,580
        1955                   2022                                   77,148
        1956                   2023                                   78,372
        1957                   2024                                   79,512
        1958                   2025                                   80,556
        1959                   2026                                   81,540
        1960                   2027                                   82,464
        1961                   2028                                   83,340
        1962                   2029                                   84,120
        1963                   2030                                   84,876
        1964                   2031                                   85,596
        1965                   2032                                   86,244
        1966                   2033                                   86,796
        1967                   2034                                   87,240
        1968                   2035                                   87,564
        1969                   2036                                   87,780
        1970                   2037                                   87,864
   1971 and later              2038                                   87,900
 2004 Rounded Covered Compensation Table
  Year of Birth    Covered Compensation
1937Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 39,000
1938 - 1939Â Â Â Â Â Â Â Â Â 45,000
1940Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 48,000
1941Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 51,000
1942 - 1943Â Â Â Â Â Â Â Â Â 54,000
1944Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 57,000
1945 - 1946Â Â Â Â Â Â Â Â Â 60,000
1947Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 63,000
1948 - 1949Â Â Â Â Â Â Â Â Â 66,000
1950 - 1951Â Â Â Â Â Â Â Â Â 69,000
1952 - 1953Â Â Â Â Â Â Â Â Â 72,000
1954Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 75,000
1955 - 1956Â Â Â Â Â Â Â Â Â 78,000
1957 - 1960Â Â Â Â Â Â Â Â Â 81,000
1961 - 1963Â Â Â Â Â Â Â Â Â 84,000
1964 - 1967Â Â Â Â Â Â Â Â Â 87,000
1968 and later      87,900
DRAFTING INFORMATION
 The principal author of this revenue ruling is Lawrence Isaacs of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this revenue ruling, please contact the Employee Plans taxpayer assistance telephone service at 1-877-829-5500, between the hours of 8:00 a.m. and 6:30 p.m. Eastern time, Monday through Friday (a toll-free number). Mr. Isaac’s number is (202) 283-9710 (not a toll-free number).
 Rev. Rul. 2003-124, 2003-49 I.R.B. 1173, 2003-2 C.B. 1173
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