Revenue Ruling 2003-117

Rev. Rul. 2003-117
Rev. Rul. 2003-117, 2003-46 I.R.B. 1051, 2003-2 C.B. 1051
                       Internal Revenue Service (I.R.S.)
                                 Revenue Ruling
     LOW-INCOME HOUSING CREDIT; SATISFACTORY BOND; “BOND FACTOR” AMOUNTS FOR
                    THE PERIOD OCTOBER THROUGH DECEMBER 2003
                          Published: November 17, 2003

 Section 42.–Low-Income Housing Credit

  Low-income housing credit; satisfactory bond; “bond factor” amounts for the period October through December 2003. This ruling announces the monthly bond factor amounts to be used by taxpayers who dispose of qualified low-income buildings or interests therein during the period October through December 2003. This ruling also provides a summary of the bond factor amounts for dispositions occurring during the period January through September 2003.

  Low-income housing credit; satisfactory bond; “bond factor” amounts for the period October through December 2003. This ruling announces the monthly bond factor amounts to be used by taxpayers who dispose of qualified low-income buildings or interests therein during the period October through December 2003. This ruling also provides a summary of the bond factor amounts for dispositions occurring during the period January through September 2003.

  In Rev. Rul. 90-60, 1990-2 C.B. 3, the Internal Revenue Service provided guidance to taxpayers concerning the general methodology used by the Treasury Department in computing the bond factor amounts used in calculating the amount of bond considered satisfactory by the Secretary under s 42(j)(6) of the Internal Revenue Code. It further announced that the Secretary would publish in the Internal Revenue Bulletin a table of bond factor amounts for dispositions occurring during each calendar month.

  Rev. Proc. 99-11, 1999-1 C.B. 275, established a collateral program as an alternative to providing a surety bond for taxpayers to avoid or defer recapture of the low-income housing tax credits under s 42(j)(6). Under this program, taxpayers may establish a Treasury Direct Account and pledge certain United States Treasury securities to the Internal Revenue Service as security.

  This revenue ruling provides in Table 1 the bond factor amounts for calculating the amount of bond considered satisfactory under s 42(j)(6) or the amount of United States Treasury securities to pledge in a Treasury Direct Account under Rev. Proc. 99-11 for dispositions of qualified low-income buildings or interests therein during the period October through December 2003. Table 1 also provides a summary of the bond factor amounts for dispositions occurring during the period January through September 2003.

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——————————————————————————-
                                                       Table 1
      Rev. Rul. 2003-117 Monthly Bond Factor Amounts for Dispositions Expressed
——————————————————————————-
—————————————
 As a Percentage of Total Credits
—————————————
                 Calendar Year Building Placed in
————————————————-
  Month of     1989   1990   1991   1992   1993
 Disposition
————————————————-
      Jan ‘03  16.23  30.04  41.83  51.93  60.50
      Feb ‘03  16.23  30.04  41.83  51.93  60.50
      Mar ‘03  16.23  30.04  41.83  51.93  60.50
      Apr ‘03  16.23  30.04  41.83  51.93  60.50
      May ‘03  16.23  30.04  41.83  51.93  60.50
      Jun ‘03  16.23  30.04  41.83  51.93  60.50
      Jul ‘03  16.23  30.04  41.83  51.93  60.50
      Aug ‘03  16.23  30.04  41.83  51.93  60.50
      Sep ‘03  16.23  30.04  41.83  51.93  60.50
      Oct ‘03  15.43  28.55  39.76  49.36  57.50
      Nov ‘03  15.43  28.55  39.76  49.36  57.50
      Dec ‘03  15.43  28.55  39.76  49.36  57.50
————————————————-
Service or, if Section 42(f)(1) Election Was Made, the Succeeding
           Calendar Year
———————————————————————
 1994   1995   1996   1997   1998   1999   2000   2001   2002   2003
———————————————————————
 60.24  60.12  60.11  60.18  60.39  60.62  60.89  61.55  62.49  62.68
 60.09  59.97  59.96  60.03  60.24  60.47  60.75  61.41  62.33  62.68
 59.94  59.82  59.82  59.89  60.10  60.33  60.62  61.27  62.19  62.68
 59.79  59.68  59.68  59.75  59.96  60.20  60.49  61.15  62.06  62.68
 59.65  59.54  59.54  59.61  59.83  60.07  60.37  61.04  61.96  62.68
 59.51  59.40  59.40  59.48  59.70  59.95  60.26  60.93  61.86  62.68
 59.37  59.27  59.27  59.35  59.58  59.83  60.15  60.83  61.77  62.68
 59.24  59.14  59.14  59.23  59.45  59.72  60.05  60.74  61.70  62.68
 59.11  59.01  59.02  59.10  59.34  59.60  59.95  60.65  61.63  62.68
 55.51  54.87  54.34  53.89  53.57  53.29  53.09  53.21  53.58  54.15
 55.39  54.76  54.23  53.78  53.47  53.20  53.01  53.15  53.54  54.15
 55.28  54.64  54.12  53.68  53.38  53.12  52.94  53.09  53.50  54.15
———————————————————————

  For a list of bond factor amounts applicable to dispositions occurring during other calendar years, see: Rev. Rul. 98-3, 1998-1 C.B. 248; Rev. Rul. 2001-2, 2001-1 C.B. 255; Rev. Rul. 2001-53, 2001-2 C.B. 488; and Rev. Rul. 2002-72, 2002-2 C.B. 759.

DRAFTING INFORMATION

  The principal author of this revenue ruling is Gregory N. Doran of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact Mr. Doran at (202) 622-3040 (not a toll-free call).

 Rev. Rul. 2003-117, 2003-46 I.R.B. 1051, 2003-2 C.B. 1051

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Revenue Ruling 2003-126

Rev. Rul. 2003-126
Rev. Rul. 2003-126, 2003-52 I.R.B. 1249, 2003-2 C.B. 1249
                       Internal Revenue Service (I.R.S.)
                                 Revenue Ruling
                 INTEREST RATES; UNDERPAYMENTS AND OVERPAYMENTS
                           Released: December 17, 2003
                          Published: December 29, 2003

 Section 6621.–Determination of Interest Rate, 26 CFR 301.6621-1: Interest rate.

  Interest rates; underpayments and overpayments. The rate of interest determined under section 6621 of the Code for the calendar quarter beginning January 1, 2004, will be 4 percent for overpayments (3 percent in the case of a corporation), 4 percent for underpayments, and 6 percent for large corporate underpayments. The rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 1.5 percent.

  Section 6621 of the Internal Revenue Code establishes the rates for interest on tax overpayments and tax underpayments. Under section 6621(a)(1), the overpayment rate beginning January 1, 2004, is the sum of the federal short-term rate plus 3 percentage points (2 percentage points in the case of a corporation), except the rate for the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the sum of the federal short-term rate plus 0.5 of a percentage point for interest computations made after December 31, 1994. Under section 6621(a)(2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points.

  Section 6621(c) provides that for purposes of interest payable under section 6601 on any large corporate underpayment, the underpayment rate under section 6621(a)(2) is determined by substituting “5 percentage points” for “3 percentage points.” See section 6621(c) and section 301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date. Section 6621(c) and section 301.6621-3 are generally effective for periods after December 31, 1990.

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

  Section 6621(b)(2)(A) provides that the federal short-term rate determined under section 6621(b)(1) for any month applies during the first calendar quarter beginning after such month.

  Section 6621(b)(2)(B) provides that in determining the addition to tax under section 6654 for failure to pay estimated tax for any taxable year, the federal short-term rate that applies during the third month following such taxable year also applies during the first 15 days of the fourth month following such taxable year.

  Section 6621(b)(3) provides that the federal short-term rate for any month is the federal short-term rate determined during such month by the Secretary in accordance with s 1274(d), rounded to the nearest full percent (or, if a multiple of 1/2 of 1 percent, the rate is increased to the next highest full percent).

  Notice 88-59, 1988-1 C.B. 546, announced that, in determining the quarterly interest rates to be used for overpayments and underpayments of tax under section 6621, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with section 6621 which, pursuant to section 6622, is subject to daily compounding.

  Rounded to the nearest full percent, the federal short-term rate based on daily compounding determined during the month of October 2003 is 1 percent. Accordingly, an overpayment rate of 4 percent (3 percent in the case of a corporation) and an underpayment rate of 4 percent are established for the calendar quarter beginning January 1, 2004. The overpayment rate for the portion of a corporate overpayment exceeding $10,000 for the calendar quarter beginning January 1, 2004, is 1.5 percent. The underpayment rate for large corporate underpayments for the calendar quarter beginning January 1, 2004, is 6 percent. These rates apply to amounts bearing interest during that calendar quarter.

  The 4 percent rate also applies to estimated tax underpayments for the first calendar quarter in 2004 and for the first 15 days in April 2004.

  Interest factors for daily compound interest for annual rates of 1.5 percent, 3 percent, 4 percent, and 6 percent are published in Tables 56, 59, 61, and 65 of Rev. Proc. 95-17, 1995-1 C.B. 556, 610, 613, 615, and 619.

  Annual interest rates to be compounded daily pursuant to section 6622 that apply for prior periods are set forth in the tables accompanying this revenue ruling.

DRAFTING INFORMATION

  The principal author of this revenue ruling is Crystal Foster of the Office of Associate Chief Counsel (Procedure & Administration). For further information regarding this revenue ruling, contact Ms. Foster at (202) 622- 7326 (not a toll-free call).

                   TABLE OF INTEREST RATES
  PERIODS BEFORE JUL. 1, 1975 - PERIODS ENDING DEC. 31, 1986
                OVERPAYMENTS AND UNDERPAYMENTS
                                              In 1995-1 C.B.
PERIOD                           RATE        DAILY RATE TABLE
Before Jul. 1, 1975               6%         Table 2, pg. 557
Jul. 1, 1975-Jan. 31, 1976        9%         Table 4, pg. 559
Feb. 1, 1976-Jan. 31, 1978        7%         Table 3, pg. 558
Feb. 1, 1978-Jan. 31, 1980        6%         Table 2, pg. 557
Feb. 1, 1980-Jan. 31, 1982        12%        Table 5, pg. 560
Feb. 1, 1982-Dec. 31, 1982        20%        Table 6, pg. 560
Jan. 1, 1983-Jun. 30, 1983        16%        Table 37, pg. 591
Jul. 1, 1983-Dec. 31, 1983        11%        Table 27, pg. 581
Jan. 1, 1984-Jun. 30, 1984        11%        Table 75, pg. 629
Jul. 1, 1984-Dec. 31, 1984        11%        Table 75, pg. 629
Jan. 1, 1985-Jun. 30, 1985        13%        Table 31, pg. 585
Jul. 1, 1985-Dec. 31, 1985        11%        Table 27, pg. 581
Jan. 1, 1986-Jun. 30, 1986        10%        Table 25, pg. 579
Jul. 1, 1986-Dec. 31, 1986        9%         Table 23, pg. 577
                    TABLE OF INTEREST RATES
               FROM JAN. 1, 1987 - Dec. 31, 1998
                              OVERPAYMENTS      UNDERPAYMENTS
                            —————-  —————–
                              1995-1 C.B.        1995-1 C.B.
                            RATE  TABLE  PG   RATE  TABLE   PG
Jan. 1, 1987-Mar. 31, 1987   8%    21    575   9%    23    577
Apr. 1, 1987-Jun. 30, 1987   8%    21    575   9%    23    577
Jul. 1, 1987-Sep. 30, 1987   8%    21    575   9%    23    577
Oct. 1, 1987-Dec. 31, 1987   9%    23    577  10%    25    579
Jan. 1, 1988-Mar. 31, 1988  10%    73    627  11%    75    629
Apr. 1, 1988-Jun. 30, 1988   9%    71    625  10%    73    627
Jul. 1, 1988-Sep. 30, 1988   9%    71    625  10%    73    627
Oct. 1, 1988-Dec. 31, 1988  10%    73    627  11%    75    629
Jan. 1, 1989-Mar. 31, 1989  10%    25    579  11%    27    581
Apr. 1, 1989-Jun. 30, 1989  11%    27    581  12%    29    583
Jul. 1, 1989-Sep. 30, 1989  11%    27    581  12%    29    583
Oct. 1, 1989-Dec. 31, 1989  10%    25    579  11%    27    581
Jan. 1, 1990-Mar. 31, 1990  10%    25    579  11%    27    581
Apr. 1, 1990-Jun. 30, 1990  10%    25    579  11%    27    581
Jul. 1, 1990-Sep. 30, 1990  10%    25    579  11%    27    581
Oct. 1, 1990-Dec. 31, 1990  10%    25    579  11%    27    581
Jan. 1, 1991-Mar. 31, 1991  10%    25    579  11%    27    581
Apr. 1, 1991-Jun. 30, 1991   9%    23    577  10%    25    579
Jul. 1, 1991-Sep. 30, 1991   9%    23    577  10%    25    579
Oct. 1, 1991-Dec. 31, 1991   9%    23    577  10%    25    579
Jan. 1, 1992-Mar. 31, 1992   8%    69    623   9%    71    625
Apr. 1, 1992-Jun. 30, 1992   7%    67    621   8%    69    623
Jul. 1, 1992-Sep. 30, 1992   7%    67    621   8%    69    623
Oct. 1, 1992-Dec. 31, 1992   6%    65    619   7%    67    621
Jan. 1, 1993-Mar. 31, 1993   6%    17    571   7%    19    573
Apr. 1, 1993-Jun. 30, 1993   6%    17    571   7%    19    573
Jul. 1, 1993-Sep. 30, 1993   6%    17    571   7%    19    573
Oct. 1, 1993-Dec. 31, 1993   6%    17    571   7%    19    573
Jan. 1, 1994-Mar. 31, 1994   6%    17    571   7%    19    573
Apr. 1, 1994-Jun. 30, 1994   6%    17    571   7%    19    573
Jul. 1, 1994-Sep. 30, 1994   7%    19    573   8%    21    575
Oct. 1, 1994-Dec. 31, 1994   8%    21    575   9%    23    577
Jan. 1, 1995-Mar. 31, 1995   8%    21    575   9%    23    577
Apr. 1, 1995-Jun. 30, 1995   9%    23    577  10%    25    579
Jul. 1, 1995-Sep. 30, 1995   8%    21    575   9%    23    577
Oct. 1, 1995-Dec. 31, 1995   8%    21    575   9%    23    577
Jan. 1, 1996-Mar. 31, 1996   8%    69    623   9%    71    625
Apr. 1, 1996-Jun. 30, 1996   7%    67    621   8%    69    623
Jul. 1, 1996-Sep. 30, 1996   8%    69    623   9%    71    625
Oct. 1, 1996-Dec. 31, 1996   8%    69    623   9%    71    625
Jan. 1, 1997-Mar. 31, 1997   8%    21    575   9%    23    577
Apr. 1, 1997-Jun. 30, 1997   8%    21    575   9%    23    577
Jul. 1, 1997-Sep. 30, 1997   8%    21    575   9%    23    577
Oct. 1, 1997-Dec. 31, 1997   8%    21    575   9%    23    577
Jan. 1, 1998-Mar. 31, 1998   8%    21    575   9%    23    577
Apr. 1, 1998-Jun. 30, 1998   7%    19    573   8%    21    575
Jul. 1, 1998-Sep. 30, 1998   7%    19    573   8%    21    575
Oct. 1, 1998-Dec. 31, 1998   7%    19    573   8%    21    575
             TABLE OF INTEREST RATES
         FROM JANUARY 1, 1999 - PRESENT
   NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS
                                 1995-1 C.B.
                             RATE   TABLE   PAGE
Jan. 1, 1999-Mar. 31, 1999    7%      19     573
Apr. 1, 1999-Jun. 30, 1999    8%      21     575
Jul. 1, 1999-Sep. 30, 1999    8%      21     575
Oct. 1, 1999-Dec. 31, 1999    8%      21     575
Jan. 1, 2000-Mar. 31, 2000    8%      69     623
Apr. 1, 2000-Jun. 30, 2000    9%      71     625
Jul. 1, 2000-Sep. 30, 2000    9%      71     625
Oct. 1, 2000-Dec. 31, 2000    9%      71     625
Jan. 1, 2001-Mar. 31, 2001    9%      23     577
Apr. 1, 2001-Jun. 30, 2001    8%      21     575
Jul. 1, 2001-Sep. 30, 2001    7%      19     573
Oct. 1, 2001-Dec. 31, 2001    7%      19     573
Jan. 1, 2002-Mar. 31, 2002    6%      17     571
Apr. 1, 2002-Jun. 30, 2002    6%      17     571
Jul. 1, 2002-Sep. 30, 2002    6%      17     571
Oct. 1, 2002-Dec. 31, 2002    6%      17     571
Jan. 1, 2003-Mar. 31, 2003    5%      15     569
Apr. 1, 2003-Jun. 30, 2003    5%      15     569
Jul. 1, 2003-Sep. 30, 2003    5%      15     569
Oct. 1, 2003-Dec. 31, 2003    4%      13     567
Jan. 1, 2004-Mar. 31, 2004    4%      61     615
                    TABLE OF INTEREST RATES
                FROM JANUARY 1, 1999 - PRESENT
           CORPORATE OVERPAYMENTS AND UNDERPAYMENTS
                              OVERPAYMENTS      UNDERPAYMENTS
                            —————-  —————–
                              1995-1 C.B.        1995-1 C.B.
                            RATE  TABLE  PG   RATE  TABLE   PG
Jan. 1, 1999-Mar. 31, 1999   6%    17    571   7%    19    573
Apr. 1, 1999-Jun. 30, 1999   7%    19    573   8%    21    575
Jul. 1, 1999-Sep. 30, 1999   7%    19    573   8%    21    575
Oct. 1, 1999-Dec. 31, 1999   7%    19    573   8%    21    575
Jan. 1, 2000-Mar. 31, 2000   7%    67    621   8%    69    623
Apr. 1, 2000-Jun. 30, 2000   8%    69    623   9%    71    625
Jul. 1, 2000-Sep. 30, 2000   8%    69    623   9%    71    625
Oct. 1, 2000-Dec. 31, 2000   8%    69    623   9%    71    625
Jan. 1, 2001-Mar. 31, 2001   8%    21    575   9%    23    577
Apr. 1, 2001-Jun. 30, 2001   7%    19    573   8%    21    575
Jul. 1, 2001-Sep. 30, 2001   6%    17    571   7%    19    573
Oct. 1, 2001-Dec. 31, 2001   6%    17    571   7%    19    573
Jan. 1, 2002-Mar. 31, 2002   5%    15    569   6%    17    571
Apr. 1, 2002-Jun. 30, 2002   5%    15    569   6%    17    571
Jul. 1, 2002-Sep. 30, 2002   5%    15    569   6%    17    571
Oct. 1, 2002-Dec. 31, 2002   5%    15    569   6%    17    571
Jan. 1, 2003-Mar. 31, 2003   4%    13    567   5%    15    569
Apr. 1, 2003-Jun. 30, 2003   4%    13    567   5%    15    569
Jul. 1, 2003-Sep. 30, 2003   4%    13    567   5%    15    569
Oct. 1, 2003-Dec. 31, 2003   3%    11    565   4%    13    567
Jan. 1, 2004-Mar. 31, 2004   3%    59    613   4%    61    615
         TABLE OF INTEREST RATES FOR
        LARGE CORPORATE UNDERPAYMENTS
       FROM JANUARY 1, 1991 - PRESENT
                               1995-1 C.B.
                            RATE  TABLE  PAGE
Jan. 1, 1991-Mar. 31, 1991  13%    31    585
Apr. 1, 1991-Jun. 30, 1991  12%    29    583
Jul. 1, 1991-Sep. 30, 1991  12%    29    583
Oct. 1, 1991-Dec. 31, 1991  12%    29    583
Jan. 1, 1992-Mar. 31, 1992  11%    75    629
Apr. 1, 1992-Jun. 30, 1992  10%    73    627
Jul. 1, 1992-Sep. 30, 1992  10%    73    627
Oct. 1, 1992-Dec. 31, 1992   9%    71    625
Jan. 1, 1993-Mar. 31, 1993   9%    23    577
Apr. 1, 1993-Jun. 30, 1993   9%    23    577
Jul. 1, 1993-Sep. 30, 1993   9%    23    577
Oct. 1, 1993-Dec. 31, 1993   9%    23    577
Jan. 1, 1994-Mar. 31, 1994   9%    23    577
Apr. 1, 1994-Jun. 30, 1994   9%    23    577
Jul. 1, 1994-Sep. 30, 1994  10%    25    579
Oct. 1, 1994-Dec. 31, 1994  11%    27    581
Jan. 1, 1995-Mar. 31, 1995  11%    27    581
Apr. 1, 1995-Jun. 30, 1995  12%    29    583
Jul. 1, 1995-Sep. 30, 1995  11%    27    581
Oct. 1, 1995-Dec. 31, 1995  11%    27    581
Jan. 1, 1996-Mar. 31, 1996  11%    75    629
Apr. 1, 1996-Jun. 30, 1996  10%    73    627
Jul. 1, 1996-Sep. 30, 1996  11%    75    629
Oct. 1, 1996-Dec. 31, 1996  11%    75    629
Jan. 1, 1997-Mar. 31, 1997  11%    27    581
Apr. 1, 1997-Jun. 30, 1997  11%    27    581
Jul. 1, 1997-Sep. 30, 1997  11%    27    581
Oct. 1, 1997-Dec. 31, 1997  11%    27    581
Jan. 1, 1998-Mar. 31, 1998  11%    27    581
Apr. 1, 1998-Jun. 30, 1998  10%    25    579
Jul. 1, 1998-Sep. 30, 1998  10%    25    579
Oct. 1, 1998-Dec. 31, 1998  10%    25    579
Jan. 1, 1999-Mar. 31, 1999   9%    23    577
Apr. 1, 1999-Jun. 30, 1999  10%    25    579
Jul. 1, 1999-Sep. 30, 1999  10%    25    579
Oct. 1, 1999-Dec. 31, 1999  10%    25    579
Jan. 1, 2000-Mar. 31, 2000  10%    73    627
Apr. 1, 2000-Jun. 30, 2000  11%    75    629
Jul. 1, 2000-Sep. 30, 2000  11%    75    629
Oct. 1, 2000-Dec. 31, 2000  11%    75    629
Jan. 1, 2001-Mar. 31, 2001  11%    27    581
Apr. 1, 2001-Jun. 30, 2001  10%    25    579
Jul. 1, 2001-Sep. 30, 2001   9%    23    577
Oct. 1, 2001-Dec. 31, 2001   9%    23    577
Jan. 1, 2002-Mar. 31, 2002   8%    21    575
Apr. 1, 2002-Jun. 30, 2002   8%    21    575
Jul. 1, 2002-Sep. 30, 2002   8%    21    575
Oct. 1, 2002-Dec. 30, 2002   8%    21    575
Jan. 1, 2003-Mar. 31, 2003   7%    19    573
Apr. 1, 2003-Jun. 30, 2003   7%    19    573
Jul. 1, 2003-Sep. 30, 2003   7%    19    573
Oct. 1, 2003-Dec. 31, 2003   6%    17    571
Jan. 1, 2004-Mar. 31, 2004   6%    65    619
    TABLE OF INTEREST RATES FOR CORPORATE
       OVERPAYMENTS EXCEEDING $10,000
       FROM JANUARY 1, 1995 - PRESENT
                               1995-1 C.B.
                            RATE  TABLE  PAGE
Jan. 1, 1995-Mar. 31, 1995  6.5%   18    572
Apr. 1, 1995-Jun. 30, 1995  7.5%   20    574
Jul. 1, 1995-Sep. 30, 1995  6.5%   18    572
Oct. 1, 1995-Dec. 31, 1995  6.5%   18    572
Jan. 1, 1996-Mar. 31, 1996  6.5%   66    620
Apr. 1, 1996-Jun. 30, 1996  5.5%   64    618
Jul. 1, 1996-Sep. 30, 1996  6.5%   66    620
Oct. 1, 1996-Dec. 31, 1996  6.5%   66    620
Jan. 1, 1997-Mar. 31, 1997  6.5%   18    572
Apr. 1, 1997-Jun. 30, 1997  6.5%   18    572
Jul. 1, 1997-Sep. 30, 1997  6.5%   18    572
Oct. 1, 1997-Dec. 31, 1997  6.5%   18    572
Jan. 1, 1998-Mar. 31, 1998  6.5%   18    572
Apr. 1, 1998-Jun. 30, 1998  5.5%   16    570
Jul. 1, 1998-Sep. 30, 1998  5.5%   16    570
Oct. 1, 1998-Dec. 31, 1998  5.5%   16    570
Jan. 1, 1999-Mar. 31, 1999  4.5%   14    568
Apr. 1, 1999-Jun. 30, 1999  5.5%   16    570
Jul. 1, 1999-Sep. 30, 1999  5.5%   16    570
Oct. 1, 1999-Dec. 31, 1999  5.5%   16    570
Jan. 1, 2000-Mar. 31, 2000  5.5%   64    618
Apr. 1, 2000-Jun. 30, 2000  6.5%   66    620
Jul. 1, 2000-Sep. 30, 2000  6.5%   66    620
Oct. 1, 2000-Dec. 31, 2000  6.5%   66    620
Jan. 1, 2001-Mar. 31, 2001  6.5%   18    572
Apr. 1, 2001-Jun. 30, 2001  5.5%   16    570
Jul. 1, 2001-Sep. 30, 2001  4.5%   14    568
Oct. 1, 2001-Dec. 31, 2001  4.5%   14    568
Jan. 1, 2002-Mar. 31, 2002  3.5%   12    566
Apr. 1, 2002-Jun. 30, 2002  3.5%   12    566
Jul. 1, 2002-Sep. 30, 2002  3.5%   12    566
Oct. 1, 2002-Dec. 31, 2002  3.5%   12    566
Jan. 1, 2003-Mar. 31, 2003  2.5%   10    564
Apr. 1, 2003-Jun. 30, 2003  2.5%   10    564
Jul. 1, 2003-Sep. 30, 2003  2.5%   10    564
Oct. 1, 2003-Dec. 31, 2003  1.5%    8    562
Jan. 1, 2004-Mar. 31, 2004  1.5%   56    610

 Rev. Rul. 2003-126, 2003-52 I.R.B. 1249, 2003-2 C.B. 1249

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Revenue Ruling 2003-127

Rev. Rul. 2003-127
Rev. Rul. 2003-127, 2003-52 I.R.B. 1245, 2003-2 C.B. 1245
                       Internal Revenue Service (I.R.S.)
                                 Revenue Ruling
                              HEDGE IDENTIFICATION
                          Published: December 29, 2003

 Section 446.–General Rule for Methods of Accounting, 26 CFR 1.446-4: Hedging transactions.

(Also ss 1221; 1.1221-2.)

  Hedge identification. This ruling holds that for purposes of the income timing rules in regulations section 1.446-4, the hedging

transaction definition in section 1.1221-2(b) is not modified by section 1.1221-2(g)(2), which deals with the effects on income characterization of a mis-identification or failure to identify a hedging transaction. If a taxpayer has used a method of accounting for a type of hedging transaction but, under section 1.446-4, that method is impermissible for those transactions, the taxpayer must obtain the Commissioner’s consent before changing to a method of accounting that is permitted.

  Hedge identification. This ruling holds that for purposes of the income timing rules in regulations section 1.446-4, the hedging transaction definition in section 1.1221-2(b) is not modified by section 1.1221-2(g)(2), which deals with the effects on income characterization of a mis-identification or failure to identify a hedging transaction. If a taxpayer has used a method of accounting for a type of hedging transaction but, under section 1.446-4, that method is impermissible for those transactions, the taxpayer must obtain the Commissioner’s consent before changing to a method of accounting that is permitted.

ISSUES

  (1) If a transaction satisfies the definitions of a hedging transaction in  s 1221(b)(2)(A) of the Internal Revenue Code and s 1.1221-2(b) of the Income Tax Regulations but the taxpayer fails to identify the transaction under ss 1.1221-2(f) and 1.446-4(d)(2), must the taxpayer nevertheless account for the transaction using a method of accounting that is permissible under s 1.446-4?

  (2) If a taxpayer has used a method of accounting for a type of hedging transaction but, under s 1.446-4, that method is impermissible for that type of transaction, is the taxpayer required to obtain the Commissioner’s consent before changing to a method of accounting permitted by s 1.446-4?

FACTS

  In the normal course of H’s trade or business, H borrows money and enters into a contract to manage the risk of interest rate changes with respect to that borrowing. The contract is not a s 1256 contract as defined in s 1256(b) of the Code. H fails to identify the contract as a hedging transaction under s 1.1221-2(f). H’s failure to identify the contract as a hedging transaction does not satisfy the conditions for the application of either s 1.1221- 2(g)(2)(ii) (which addresses certain inadvertent errors) or s 1.1221- 2(g)(iii) (which provides an anti-abuse rule). In addition, H fails to comply with the identification requirements in s 1.446-4(d)(2). Section 1.446- 4(a)(1) and (2), which sets forth exceptions to the general rules in s 1.446-4, does not apply to the contract. H has previously established a method of accounting for hedging transactions of this type, but the method is not a permissible method under s 1.446-4.

LAW AND ANALYSIS

Issue (1)

  Section 1221 defines a capital asset as property that is not described in s 1221(a)(1) through s 1221(a)(8). Among the excluded classes of property are the transactions described in s 1221(a)(7) that are clearly identified as hedging transactions before the close of the day on which they are acquired, originated, or entered into. Thus, to be excluded from treatment as a capital asset under s 1221(a)(7), a transaction must fall within the definition of a hedging transaction and must be properly identified as a hedging transaction.

  The term “hedging transaction” is defined in s 1221(b)(2)(A) and s 1.1221-2(b) as any transaction entered into by a taxpayer in the normal course of the taxpayer’s trade or business primarily to manage the risks specified in  s 1221(b)(2)(A)(i) through (iii).

Because the contract is entered into in the normal course of H’s business primarily to manage the risk of interest rate changes with respect to a borrowing, the contract falls within the definition of a hedge set forth in s 1221(b)(2)(A)(i) and s 1.1221-2(b)(2).

  The general requirements for a proper identification, as required by s 1221(a)(7), are set forth in s 1.1221-2(f). Additional identification requirements are set forth in s 1.446-4(d)(2). Furthermore, s 1221(b)(2)(B) specifically directs the Secretary to prescribe regulations that properly characterize any income, gain, expense, or loss arising from a transaction that (1) is a hedging transaction but is not properly identified under s 1221(a)(7) or (2) is not a hedging transaction but is so identified.

Section 1.1221-2(g)(2) generally provides that a failure to make a proper identification under s 1.1221-2(f)(1) “establishes that a transaction is not a hedging transaction” and that the rules of s 1.1221- 2(a)(1) and (2) (providing special rules for the character of gain or loss) do not apply. Consequently, because H fails to identify the contract as a hedging transaction under s 1.1221-2(f), and because the exceptions set forth in ss 1.1221-2(g)(2)(ii) or (iii) do not apply, then s 1.1221-2(a)(1) and (2) do not apply to the contract.

  Section 1.446-4(a) provides that “a hedging transaction as defined in s 1.1221-2(b) (whether or not the character of the gain or loss from the transaction is determined under s 1.1221-2) must be accounted for under the rules of [s 1.446-4].” Because s 1.1221-2(g) causes H’s contract to fail to be a hedging transaction for purposes of s 1.1221-2(a)(1) and (2), the question arises whether H’s contract also fails to be a hedging transaction for purposes of s 1.446-4(a).

  H’s contract is a hedging transaction for purposes of s 1.446-4. First, the definitions of a hedging transaction set forth in s 1221(b)(2)(A) and s 1.1221-2(b) do not contain an identification requirement. In fact, s 1221(b)(2)(B) refers to a transaction “which is a hedging transaction but which was not identified as such in accordance with [s 1221(a)(7)] … .” This language indicates that, even though s 1221(a)(7) does not cause the transaction to give rise to ordinary income or loss unless it is properly identified, that transaction may nevertheless be a hedging transaction.

  Second, s 1.446-4(a) refers only to the definition of a hedging transaction in s 1.1221-2(b) and does not refer to the additional rules contained in s 1.1221-2(g)(2) regarding the treatment of unidentified transactions.

  Third, the purpose of ss 1221(a)(7) and 1221(b) is to address the character of income or loss. Specifically, these sections match the character of the hedge to that of the hedged item in a manner that is generally advantageous to taxpayers. The purpose of s 1.446-4 is to clearly reflect income by matching the timing of income, gain, loss, and deductions of a hedging transaction to income, gain, loss and deductions of a hedged item. This purpose is independent of character of income and loss. Thus, s 1.1221-2(g)(1) and (2) affects the character of income or loss but does not modify the definition of a hedging transaction under s 1221(b)(2)(A) and s 1.1221- 2(b). Despite H’s failure to identify the contract as a hedging transaction under s 1.1221-2(f)(1), H’s failure to identify the hedged item, items, or aggregate risk under s 1.1221-2(f)(2), and H’s failure to comply with the

identification requirements in s 1.446-4(d)(2), H must account for income, deduction, gain, or loss on the contract using a method of accounting that clearly reflects income under s 1.446-4.

Issue (2)

  Section 1.446-4 provides guidance regarding methods of accounting that clearly reflect income from hedging transactions. See s 1.446-4(b), which states that “[t]o clearly reflect income, the method used must reasonably match the timing of income, deduction, gain, or loss from the hedging transaction with the timing of the income, deduction, gain, or loss from the item or items being hedged.” Each method of accounting used by a taxpayer must clearly reflect income.

  Section 1.446-4(c) generally permits a taxpayer to adopt a method of accounting that clearly reflects the taxpayer’s income from a particular type of transaction. Different methods of accounting may be used for different types of hedging transactions and for transactions that hedge different types of items. Once a taxpayer adopts a method of accounting, however, that method must be applied consistently and may only be changed with the consent of the Commissioner, as provided by s 446(e) and the applicable regulations and procedures.

  Rev. Rul. 90-38, 1990-1 C.B. 57, holds that in determining gross income or deductions, the treatment of a material item in the same way for two or more consecutively filed tax returns represents consistent treatment of that item for purposes of s 1.446-1(e)(2)(ii)(a). If a taxpayer treats an item properly in the first return that reflects the item, however, the taxpayer need not have treated the item consistently in two or more consecutive tax returns to have adopted a method of accounting. If a taxpayer has adopted a method of accounting, the taxpayer may not change the method by amending its prior income tax returns.

  Despite H’s failure to identify the contract as a hedging transaction under  s 1.1221-2(f) and H’s failure to comply with the identification requirements in s 1.446-4(d)(2), H must account for the gain or loss on the contract using a method of accounting that clearly reflects income under s 1.446-4. See s 1.446-1(b)(1) (which provides that if the taxpayer does not regularly employ a method of accounting which clearly reflects income, the computation of taxable income shall be made in a manner which, in the opinion of the Commissioner, does clearly reflect income). Because H has previously adopted a method of accounting for the same type of hedging transaction, H must use that method to account for the gain or loss on the contract unless H obtains the consent of the Commissioner to change to a method that satisfies s 1.446-4. See s 1.446-1(e)(2)(i) (which provides that a taxpayer must obtain the consent of the Commissioner before changing its method of accounting, whether or not its method of accounting is permissible) and s 446(f) (which provides that failure to file a request to change the method of accounting does not prevent the imposition, or diminish the amount of, any penalties or additions to tax). See Rev. Proc. 97-27, 1997-1 C.B. 680, for the procedure to obtain the Commissioner’s consent to change to a permissible method.

HOLDINGS

  (1) If a transaction satisfies the definitions of a hedging transaction in s 1221(b)(2)(A) and s 1.1221-2(b), the taxpayer must account for the transaction using a method of accounting that is permissible under s 1.446- 4, even if the taxpayer fails to identify the transaction under ss 1.1221- 2(f) and 1.446-4(d)(2).

  (2) If a taxpayer has used a method of accounting for a type of hedging transaction but, under s 1.446-4, that method is impermissible for those transactions, the taxpayer must obtain the Commissioner’s consent before changing to a method of accounting permitted by s 1.446-4.

DRAFTING INFORMATION

  The principal author of this revenue ruling is Arturo Estrada of the Office of Associate Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling, contact Mr. Estrada at (202) 622- 3900 (not a toll-free call).

 Rev. Rul. 2003-127, 2003-52 I.R.B. 1245, 2003-2 C.B. 1245

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Revenue Ruling 2003-128

Rev. Rul. 2003-128
Rev. Rul. 2003-128, 2003-52 I.R.B. 1247, 2003-2 C.B. 1247
                       Internal Revenue Service (I.R.S.)
                                 Revenue Ruling
                     LIFO; PRICE INDEXES; DEPARTMENT STORES
                          Published: December 29, 2003

 Section 472.–Last-in, First-out Inventories, 26 CFR 1.472-1: Last-in, first-out inventories.

  LIFO; price indexes; department stores. The October 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, October 31, 2003.

  LIFO; price indexes; department stores. The October 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, October 31, 2003.

  The following Department Store Inventory Price Indexes for October 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, October 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                Oct. 2002    Oct. 2003    Percent
                                                                      Change
                                                                     from Oct.
                                                                      2002 to
                                                                     Oct. 2003
                                                                       [FN1]
——————————————————————————-
1.         Piece Goods …………………… 485.7        487.3          0.3
2.         Domestics and Draperies ………… 581.6        556.5         -4.3
3.         Women’s and Children’s Shoes ……. 660.4        657.4         -0.5
4.         Men’s Shoes …………………… 895.6        844.9         -5.7
5.         Infants’ Wear …………………. 628.9        609.1         -3.1
6.         Women’s Underwear ……………… 544.2        520.2         -4.4
7.         Women’s Hosiery ……………….. 339.8        352.3          3.7
8.         Women’s and Girls’
             Accessories …………………. 551.6        578.0          4.8
9.         Women’s Outerwear and Girls’
             Wear ……………………….. 388.2        387.8         -0.1
10.        Men’s Clothing ………………… 573.0        552.3         -3.6
11.        Men’s Furnishings ……………… 599.3        592.1         -1.2
12.        Boys’ Clothing and
             Furnishings …………………. 459.4        441.9         -3.8
13.        Jewelry ………………………. 897.1        883.7         -1.5
14.        Notions ………………………. 808.9        786.9         -2.7
15.        Toilet Articles and Drugs ………. 975.1        984.0          0.9
16.        Furniture and Bedding ………….. 626.4        618.8         -1.2
17.        Floor Coverings ……………….. 592.6        589.4         -0.5
18.        Housewares ……………………. 745.8        714.3         -4.2
19.        Major Appliances ………………. 223.7        210.2         -6.0
20.        Radio and Television ……………. 47.6         44.4         -6.7
21.        Recreation and Education
             [FN2] ……………………….. 85.2         82.1         -3.6
22.        Home Improvements [FN2] ………… 124.6        125.3          0.6
23.        Automotive Accessories [FN2] ……. 111.3        111.8          0.4
Groups 1-15: Soft Goods ………………….. 582.7        574.9         -1.3
Groups 16-20: Durable Goods ………………. 407.4        390.0         -4.3
Groups 21-23: Misc. Goods [FN2] ……………. 95.7         93.8         -2.0
           Store Total [FN3] ……………… 518.1        507.8         -2.0
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 Denise Carmichael of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Ms. Carmichael at (202) 622- 6888 (not a toll-free call).

 Rev. Rul. 2003-128, 2003-52 I.R.B. 1247, 2003-2 C.B. 1247

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Revenue Ruling 2003-117

Rev. Rul. 2003-117
Rev. Rul. 2003-117, 2003-46 I.R.B. 1051, 2003-2 C.B. 1051
                       Internal Revenue Service (I.R.S.)
                                 Revenue Ruling
     LOW-INCOME HOUSING CREDIT; SATISFACTORY BOND; “BOND FACTOR” AMOUNTS FOR
                    THE PERIOD OCTOBER THROUGH DECEMBER 2003
                          Published: November 17, 2003

 Section 42.–Low-Income Housing Credit

  Low-income housing credit; satisfactory bond; “bond factor” amounts for the period October through December 2003. This ruling announces the monthly bond factor amounts to be used by taxpayers who dispose of qualified low-income buildings or interests therein during the period October through December 2003. This ruling also provides a summary of the bond factor amounts for dispositions occurring during the period January through September 2003.

  Low-income housing credit; satisfactory bond; “bond factor” amounts for the period October through December 2003. This ruling announces the monthly bond factor amounts to be used by taxpayers who dispose of qualified low-income buildings or interests therein during the period October through December 2003. This ruling also provides a summary of the bond factor amounts for dispositions occurring during the period January through September 2003.

  In Rev. Rul. 90-60, 1990-2 C.B. 3, the Internal Revenue Service provided guidance to taxpayers concerning the general methodology used by the Treasury Department in computing the bond factor amounts used in calculating the amount of bond considered satisfactory by the Secretary under s 42(j)(6) of the Internal Revenue Code. It further announced that the Secretary would publish in the Internal Revenue Bulletin a table of bond factor amounts for dispositions occurring during each calendar month.

  Rev. Proc. 99-11, 1999-1 C.B. 275, established a collateral program as an alternative to providing a surety bond for taxpayers to avoid or defer recapture of the low-income housing tax credits under s 42(j)(6). Under this program, taxpayers may establish a Treasury Direct Account and pledge certain United States Treasury securities to the Internal Revenue Service as security.

  This revenue ruling provides in Table 1 the bond factor amounts for calculating the amount of bond considered satisfactory under s 42(j)(6) or the amount of United States Treasury securities to pledge in a Treasury Direct Account under Rev. Proc. 99-11 for dispositions of qualified low-income buildings or interests therein during the period October through December 2003. Table 1 also provides a summary of the bond factor amounts for dispositions occurring during the period January through September 2003.

[Note:  The following TABLE/FORM is too wide to be displayed on one screen.

You must print it for a meaningful review of its contents.  The table has been

divided into multiple pieces with each piece containing information to help you

assemble a printout of the table.  The information for each piece includes: (1)

a three line message preceding the tabular data showing by line # and

character # the position of the upper left-hand corner of the piece and the

position of the piece within the entire table; and (2) a numeric scale

following the tabular data displaying the character positions.]

——————————————————————————-
                                                       Table 1
      Rev. Rul. 2003-117 Monthly Bond Factor Amounts for Dispositions Expressed
——————————————————————————-
—————————————
 As a Percentage of Total Credits
—————————————
                 Calendar Year Building Placed in
————————————————-
  Month of     1989   1990   1991   1992   1993
 Disposition
————————————————-
      Jan ‘03  16.23  30.04  41.83  51.93  60.50
      Feb ‘03  16.23  30.04  41.83  51.93  60.50
      Mar ‘03  16.23  30.04  41.83  51.93  60.50
      Apr ‘03  16.23  30.04  41.83  51.93  60.50
      May ‘03  16.23  30.04  41.83  51.93  60.50
      Jun ‘03  16.23  30.04  41.83  51.93  60.50
      Jul ‘03  16.23  30.04  41.83  51.93  60.50
      Aug ‘03  16.23  30.04  41.83  51.93  60.50
      Sep ‘03  16.23  30.04  41.83  51.93  60.50
      Oct ‘03  15.43  28.55  39.76  49.36  57.50
      Nov ‘03  15.43  28.55  39.76  49.36  57.50
      Dec ‘03  15.43  28.55  39.76  49.36  57.50
————————————————-
Service or, if Section 42(f)(1) Election Was Made, the Succeeding
           Calendar Year
———————————————————————
 1994   1995   1996   1997   1998   1999   2000   2001   2002   2003
———————————————————————
 60.24  60.12  60.11  60.18  60.39  60.62  60.89  61.55  62.49  62.68
 60.09  59.97  59.96  60.03  60.24  60.47  60.75  61.41  62.33  62.68
 59.94  59.82  59.82  59.89  60.10  60.33  60.62  61.27  62.19  62.68
 59.79  59.68  59.68  59.75  59.96  60.20  60.49  61.15  62.06  62.68
 59.65  59.54  59.54  59.61  59.83  60.07  60.37  61.04  61.96  62.68
 59.51  59.40  59.40  59.48  59.70  59.95  60.26  60.93  61.86  62.68
 59.37  59.27  59.27  59.35  59.58  59.83  60.15  60.83  61.77  62.68
 59.24  59.14  59.14  59.23  59.45  59.72  60.05  60.74  61.70  62.68
 59.11  59.01  59.02  59.10  59.34  59.60  59.95  60.65  61.63  62.68
 55.51  54.87  54.34  53.89  53.57  53.29  53.09  53.21  53.58  54.15
 55.39  54.76  54.23  53.78  53.47  53.20  53.01  53.15  53.54  54.15
 55.28  54.64  54.12  53.68  53.38  53.12  52.94  53.09  53.50  54.15
———————————————————————

  For a list of bond factor amounts applicable to dispositions occurring during other calendar years, see: Rev. Rul. 98-3, 1998-1 C.B. 248; Rev. Rul. 2001-2, 2001-1 C.B. 255; Rev. Rul. 2001-53, 2001-2 C.B. 488; and Rev. Rul. 2002-72, 2002-2 C.B. 759.

DRAFTING INFORMATION

  The principal author of this revenue ruling is Gregory N. Doran of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact Mr. Doran at (202) 622-3040 (not a toll-free call).

 Rev. Rul. 2003-117, 2003-46 I.R.B. 1051, 2003-2 C.B. 1051

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Revenue Ruling 2003-107

Rev. Rul. 2003-107
Rev. Rul. 2003-107, 2003-41 I.R.B. 815, 2003-2 C.B. 815
                       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: September 22, 2003
                           Published: October 14, 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 October 2003.

Section 280G.–Golden Parachute Payments

  Federal short-term, mid-term, and long-term rates are set forth for the month of October 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 October 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 October 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 October 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 October 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 October 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 October 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 October 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 October 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 October 2003.

Section 1288.–Treatment of Original Issue Doscounts on Tax-Exempt Obligations

  The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of October 2003.

Section 7520.–Valuation Tables

  The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of October 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 October 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 October 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 October 2003.

  This revenue ruling provides various prescribed rates for federal income tax purposes for October 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. Finally, 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.

——————————————————-
              REV. RUL. 2003-107 TABLE 1
    Applicable Federal Rates (AFR) for October 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  3.65%      3.62%       3.60%      3.59%
  110% AFR  4.02%      3.98%       3.96%      3.95%
  120% AFR  4.39%      4.34%       4.32%      4.30%
  130% AFR  4.77%      4.71%       4.68%      4.66%
  150% AFR  5.50%      5.43%       5.39%      5.37%
  175% AFR  6.44%      6.34%       6.29%      6.26%
 Long-Term
       AFR  5.23%      5.16%       5.13%      5.11%
  110% AFR  5.76%      5.68%       5.64%      5.61%
  120% AFR  6.29%      6.19%       6.14%      6.11%
  130% AFR  6.82%      6.71%       6.65%      6.62%
——————————————————-
—————————————————————
                  REV. RUL. 2003-107 TABLE 2
                 Adjusted AFR for October 2003
                    Period for Compounding
                         Annual  Semiannual  Quarterly  Monthly
Short-term adjusted AFR  1.36%   1.36%       1.36%      1.36%
Mid-term adjusted AFR    2.98%   2.96%       2.95%      2.94%
Long-term adjusted AFR   4.74%   4.69%       4.66%      4.64%
—————————————————————
——————————————————————————-
                          REV. RUL. 2003-107 TABLE 3
                   Rates Under Section 382 for October 2003
Adjusted federal long-term rate for the current month                     4.74%
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. 2003-107 TABLE 4
        Appropriate Percentages Under Section 42(b)(2) for October 2003
Appropriate percentage for the 70% present value low-income housing       8.03%
  credit
Appropriate percentage for the 30% present value low-income housing       3.44%
  credit
——————————————————————————-
——————————————————————————-
                          REV. RUL. 2003-107 TABLE 5
                   Rate Under Section 7520 for October 2003
Applicable federal rate for determining the present value of an annuity,  4.4%
  an interest for life or a term of years, or a remainder or reversionary
  interest
——————————————————————————-

 Rev. Rul. 2003-107, 2003-41 I.R.B. 815, 2003-2 C.B. 815

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Revenue Ruling 2003-125

Rev. Rul. 2003-125
Rev. Rul. 2003-125, 2003-52 I.R.B. 1243, 2003-2 C.B. 1243
                       Internal Revenue Service (I.R.S.)
                                 Revenue Ruling
                          WORTHLESS SECURITY DEDUCTION
                           Released: December 9, 2003
                          Published: December 29, 2003

 Section 332.–Complete Liquidations of Subsidiaries, 26 CFR 1.332-2: Requirements for nonrecognition of gain or loss.

  When a shareholder is, and is not, allowed a worthless security deduction under section 165(g)(3) when an election is made to change the federal tax classification of an entity from a corporation to a disregarded entity.

Section 165.–Losses, 26 CFR 1.165-1: Losses.

  Worthless security deduction. This ruling discusses when a shareholder is, and is not, allowed a worthless security deduction under section 165(g)(3) of the Code when an election is made to change the federal tax classification of an entity from a corporation to a disregarded entity. Rev. Rul. 70-489 superseded and Rev. Rul. 59-296 amplified.

  Worthless security deduction. This ruling discusses when a shareholder is, and is not, allowed a worthless security deduction under section 165(g)(3) of the Code when an election is made to change the federal tax classification of an entity from a corporation to a disregarded entity. Rev. Rul. 70-489 superseded and Rev. Rul. 59-296 amplified.

ISSUE

  Under the circumstances described below, when an election is made to change the federal tax classification of an entity from a corporation to a disregarded entity under s 301.7701-3 of the Procedure and Administration Regulations, is the shareholder allowed a worthless security deduction under s 165(g)(3) of the Internal Revenue Code?

FACTS

Situation 1

  P is a domestic corporation that is a calendar year taxpayer. FS is an entity that is organized under the laws of Country X. FS has only one class of equity interests outstanding, all of which is owned by P. Since the date of its organization, FS has derived all of its gross receipts from manufacturing operations. FS is indebted to P and to trade creditors. All of FS’s indebtedness constitutes valid indebtedness for federal tax purposes and is recourse to FS. FS is an eligible entity within the meaning of s 301.7701-3(a) and, prior to July 1, 2003, FS is treated as a corporation within the meaning of s 7701(a)(3) for federal tax purposes.

  On December 31, 2002, P’s FS stock was not worthless. On July 1, 2003, P files a valid Form 8832, Entity Classification Election, changing the classification of FS from a corporation to a disregarded entity for federal tax purposes effective as of that date. The election has no effect on the treatment of FS under Country X law. After the election is effective, FS continues its manufacturing operations. At the close of the day immediately before the effective date of the election, the fair market value of FS’s assets, including intangible assets such as goodwill and going concern value, exceeds the sum of its liabilities. However, at that time, the fair market value of FS’s assets, excluding intangible assets such as goodwill and going concern value, does not exceed the sum of its liabilities.

Situation 2

  The facts are the same as in Situation 1, except that at the close of the day immediately before the effective date of the election, the fair market value of FS’s assets, including intangible assets such as goodwill and going concern value, does not exceed the sum of its liabilities.

LAW AND ANALYSIS

  Section 301.7701-3(g)(1)(iii) provides that if an eligible entity classified as an association properly elects under s 301.7701-3(c)(1)(i) to be classified as a disregarded entity, the association is deemed to distribute all of its assets and liabilities to its single owner in liquidation of the association.

  Under s 301.7701-3(g)(2), the tax treatment of a change in the classification of an entity for federal income tax purposes by an election under s 301.7701- 3(c)(1)(i) is determined under all relevant provisions of the Internal Revenue Code and general principles of tax law, including the step transaction doctrine.

  Section 301.7701-3(g)(3) provides that any transaction deemed to occur as a result of a change in classification is treated as occurring immediately before the close of the day before the election is effective.

  Under s 332(a), no gain or loss shall be recognized on the receipt by a corporation of property distributed in complete liquidation of another corporation. Section 332(b) provides, in part, that a distribution shall be considered to be in complete liquidation only if the corporation receiving such property was, on the date of the adoption of the plan of liquidation and at all times thereafter until the receipt of the property, the owner of stock that meets the requirements of s 1504(a)(2) and the distribution is made in complete cancellation or redemption of all of the stock of the liquidating corporation.

  Section 1.332-2(b) of the Income Tax Regulations provides that s 332 applies only to those cases in which the recipient corporation receives at least partial payment for stock which it owns in the liquidating corporation. If s 332 is not applicable, see s 165(g) relative to allowance of losses on worthless securities.

  In determining the amount of gain recognized by shareholders upon a taxable corporate liquidation, courts have recognized that goodwill and other intangible assets that are distributed in the liquidation must be taken into account. See, e.g., Carty v. Commissioner, 38 T.C. 46 (1962).

  Section 165(a) allows as a deduction any loss sustained during the year and not compensated for by insurance or otherwise. Under s 1.165-1(b) and (d), to be allowable as a deduction under s 165(a), a loss must be evidenced by closed and completed transactions, fixed by identifiable events, and, with certain exceptions, actually sustained during the taxable year. Only a bona fide loss is allowable. Substance and not mere form governs in determining a deductible loss.

  Under s 165(g)(1), if any security which is a capital asset becomes worthless during the taxable year, the resulting loss is treated as a loss from the sale or exchange, on the last day of the taxable year, of a capital asset. Section 165(g)(2)(A) provides that for purposes of a worthless security deduction, the term “security” includes a share of stock in a corporation.

  Under s 165(g)(3), any security in a corporation affiliated with a taxpayer that is a domestic corporation is not treated as a capital asset. A corporation is treated as affiliated with the taxpayer only if the taxpayer directly owns stock of the corporation that meets the requirements of s1504(a)(2), and more than 90 percent of the aggregate of the corporation’s gross receipts for all taxable years are from sources other than royalties, certain rents, dividends, certain interest, annuities, and gains from sales of stocks and securities.

  Section 166(a)(1) allows as a deduction any debt which becomes worthless within the taxable year.

  Section 166(a)(2) provides that the Secretary, when satisfied that a debt is recoverable only in part, may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction.

  Whether a loss due to worthlessness is actually sustained during the taxable year is a factual determination. Boehm v. Commissioner, 326 U.S. 287, 293 (1945), reh’g denied, 326 U.S. 811 (1946). A taxpayer must prove with objective evidence that the stock in question becomes worthless during the taxable year. Id. at 292.

  In Morton v. Commissioner, 38 B.T.A. 1270, 1279 (1938), aff’d, 112 F.2d 320 (7th Cir. 1940), a shareholder claimed a worthless stock deduction for the year in which the corporation liquidated and the Commissioner denied the deduction on the grounds that the stock became worthless in a prior year. The court concluded that stock is worthless when it has neither liquidating value nor potential future value. Applying this standard, the court concluded that the stock became worthless in a prior year and, thus, denied the worthless stock deduction in the year claimed by the taxpayer. Where a worthless stock deduction is claimed upon the liquidation of a corporation and the stock did not become worthless in a prior tax year, the standard for determining worthlessness is whether the shareholders receive payment for their stock. See H.K. Porter Co. v. Commissioner, 87 T.C. 689 (1986).

  Rev. Rul. 70-489, 1970-2 C.B. 53, amplifying Rev. Rul. 59-296, 1959-2 C.B. 87, holds that where a wholly owned subsidiary had bona fide indebtedness to its parent corporation that exceeded the fair market value of its assets and the subsidiary transferred all of its assets to its parent in partial satisfaction of its indebtedness, the parent could claim both a bad debt deduction and a worthless security deduction, even though the parent continued the business formerly conducted by the subsidiary. The ruling states as a fact that the stock of the subsidiary became worthless in the year at issue.

  If a shareholder receives no payment for its stock in a liquidation of the corporation, neither s 331 nor s 332 applies to the liquidation. The fact that a shareholder receives no payment for its stock in a liquidation of the corporation demonstrates that such shareholder’s stock is worthless. In addition, the liquidation is an identifiable event that fixes the loss with respect to the stock.

  A shareholder receives no payment for its stock in a liquidation if, at the time of the liquidation, the fair market value of the corporation’s assets is less than the corporation’s liabilities. In determining the fair market value of a corporation’s assets, all of the corporation’s assets, including tangible and intangible assets (such as goodwill and going concern value) and assets that may not appear on the corporation’s balance sheet, must be taken into account. In addition, the fair market value of an asset may be different than the value that appears on the corporation’s balance sheet. The estate tax regulations provide that the fair market value of property is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. See s 20.2031-1(b) of the Estate Tax Regulations. The Service and the courts regularly apply the valuation standards in the estate tax regulations for purposes of determining the value of property for income tax purposes. See, e.g., Krapf v. United States, 977 F.2d 1454, 1457 (Fed. Cir. 1992); Martin Ice Cream Co. v. Commissioner, 110 T.C. 189, 220 (1998).

  The fair market value of a corporation’s intangible assets is determined by reference to all of the facts and circumstances, which may include, but are not limited to, the corporation’s prospects for future profit as evidenced by such things as the corporation’s economic outlook, the demand for the corporation’s products, the efficiency of the corporation’s operations, and the size of the corporation’s customer base. Other factors used in making this determination may include, but are not limited to, whether a substantial capital infusion will be necessary in order to continue operations, whether any significant operational changes are anticipated, and whether an impairment loss is or will be reported for financial statement purposes or whether the operations are or will be reported as discontinued operations for financial statement purposes. Where a corporation’s business continues after a liquidation of the corporation without a substantial infusion of capital and the revenues of that business following the liquidation exceed the amount required to service debt that existed immediately prior to the liquidation, such facts may suggest that at the time of liquidation the fair market value of the liquidating entity’s assets, including goodwill and going concern value, exceeded the sum of its liabilities and that the deemed distribution of assets was with respect to stock within the meaning of s 1.332-2(b).

  In Situation 1, at the close of the day immediately before the effective date of the election, the stock of FS is not worthless because the fair market value of FS’s assets, including intangible assets such as goodwill and going concern value, exceeds the sum of FS’s liabilities. Accordingly, P receives at least partial payment on its FS stock in the deemed liquidation of FS. Hence, s 332 applies to the deemed liquidation and no loss is allowable to P.

  In Situation 2, at the close of the day immediately before the effective date of the election, the stock of FS is worthless because the fair market value of FS’s assets, including intangible assets such as goodwill and going concern value, does not exceed the sum of FS’s liabilities. Accordingly, P does not receive any payment on its FS stock in the deemed liquidation of FS and s 332 does not apply to the deemed liquidation. The deemed liquidation is an identifiable event that fixes P’s loss with respect to the FS stock. Therefore, P is allowed a worthless security deduction under s 165(g)(3) on its tax return for the 2003 taxable year. FS’s creditors, including P, may be entitled to a deduction for a partially or wholly worthless debt under s 166.

HOLDING

  When an election is made to change the classification of an entity from a corporation to a disregarded entity, the shareholder of such entity is allowed a worthless security deduction under s 165(g)(3) if the fair market value of the assets of the entity, including intangible assets such as goodwill and going concern value, does not exceed the entity’s liabilities such that on the deemed liquidation of the entity the shareholder receives no payment on its stock.

EFFECT ON OTHER DOCUMENTS

  Rev. Rul. 70-489 is superseded and Rev. Rul. 59-296 is amplified.

DRAFTING INFORMATION

  For further information regarding this revenue ruling, contact Glenn Bogdonoff of the Office of Associate Chief Counsel (Income Tax and Accounting) at (202) 622-4950 (not a toll-free call) or Sean McKeever of the Office of Associate Chief Counsel (Corporate) at (202) 622-7750 (not a toll-free call).

 Rev. Rul. 2003-125, 2003-52 I.R.B. 1243, 2003-2 C.B. 1243

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Revenue Ruling 2003-120

Rev. Rul. 2003-120
Rev. Rul. 2003-120, 2003-48 I.R.B. 1154, 2003-2 C.B. 1154
                       Internal Revenue Service (I.R.S.)
                                 Revenue Ruling
           LIFE INSURANCE COMPANIES; COMPUTATION OF REQUIRED INTEREST
                           Published: December 1, 2003

 Section 812.–Definition of Company’s Share and Policyholders’ Share

  Life insurance companies; computation of required interest. This ruling provides that a life insurance company calculates “required interest” under section 812(b)(2)(A) of the Code using the mean of the amount of the reserve at the beginning of the taxable year and the amount of the reserve at the end of such year.

  Life insurance companies; computation of required interest. This ruling provides that a life insurance company calculates “required interest” under section 812(b)(2)(A) of the Code using the mean of the amount of the reserve at the beginning of the taxable year and the amount of the reserve at the end of such year.

ISSUE

  What is the amount of reserves used to calculate “required interest” under  section 812(b)(2)(A) of the Internal Revenue Code?

FACTS

  IC is a life insurance company subject to tax under Part I of subchapter L of the Internal Revenue Code (ss 801-818). For purposes of determining its life insurance company taxable income, IC computes the amount of the section 807(c)(1) life insurance reserves under section 807(d)(2), using the greater of the applicable Federal interest rate or the prevailing State assumed rate. For purposes of this revenue ruling, assume that the applicable Federal interest rate for the contracts is 6.0% and that the applicable Federal interest rate exceeds the prevailing State assumed rate for the contracts.

  On January 1, 200x, the opening balance of IC’s life insurance reserves  (determined under section 807(d)(2)) equaled $1,000,000x. On December 31, 200x, the closing balance of IC’s life insurance reserves for the contracts totaled $1,224,434x.

LAW AND ANALYSIS

  To prevent a life insurance company from realizing a double benefit for tax-preferred investment income (tax-exempt interest and dividends providing a dividends-received deduction) used to fund the company’s liabilities to policyholders, sections 807 and 805 require the company to adjust certain income and deduction items for the policyholders’ share of such tax preferred income.

  To determine the increase or decrease in reserves for a taxable year, a life insurance company reduces its end-of-year reserves by the “policyholders’ share” of tax-exempt interest. Section 807(a) and (b). The company’s deduction under section 805(a)(2) for a net increase in reserves, therefore, is reduced by the policyholders’ share of tax exempt interest. Conversely, if there is a net decrease in reserves, the company’s gross income under section 803(a)(2) is increased by the policyholders’ share of tax exempt interest. The adjustments effectively deny the company any exclusion for the policyholders’ share of tax-exempt interest.

  Section 805(a)(4) prevents a double benefit with regard to dividends eligible for the dividends-received deduction by limiting a life insurance company’s deduction for dividends (other than “100 percent dividends” as defined in section 805(a)(4)(C)) received by the company. The deduction is limited to the “company’s share” of the dividends received. See section 805(a)(4)(A)(ii). No dividends-received deduction is allowed for the policyholders’ share of dividends received.

  Section 812 provides the mechanism to calculate the life insurance company’s and policyholders’ respective shares of net investment income. For purposes of section 805(a)(4), the company’s share is the percentage obtained by dividing (1) the company’s share of the net investment income for the taxable year, by (2) the net investment income for the year. Section 812(a)(1). The policyholders’ share is the excess of 100 percent over the company’s percentage share. Section 812(a)(2).

  The first step in applying section 812 is to determine, under section 812(d), the amount of the life insurance company’s “gross investment income” for the taxable year. Next, “net investment income” for the taxable year is calculated under section 812(c). Except as otherwise provided in section 812(c)(2) with regard to income attributable to assets held in a segregated asset account for variable contracts, the net investment income for a taxable year equals 90% of gross investment income for the year. Under section 812(b)(1), the life insurance company’s share of net investment income is the excess (if any) of the net investment income for the taxable year over the sum of the “policy interest” for the taxable year and the “gross investment income’s proportionate share of policyholder dividends” for the taxable year. The policyholders’ share of net investment income, therefore, is the portion of net investment income equal to the lesser of (1) the sum of policy interest and gross investment income’s proportionate share of policyholder dividends for the taxable year or (2) the total net investment income.

  Section 812(b)(2) provides that policy interest equals the sum of–

  (A) required interest (at the greater of the prevailing State assumed rate or the applicable Federal interest rate) on section 807(c) reserves (other than unearned premiums and unpaid losses under section 807(c)(2));

  (B) the deductible portion of excess interest;

  (C) the deductible portion of any amount (whether or not a policyholder dividend) that is not taken into account under section 812(b)(2)(A) or (B) and that is credited either to (i) a policyholder’s fund under a pension plan contract for employees (other than retired employees), or (ii) a deferred annuity contract before the annuity stating date; and

  (D) interest on amounts left on deposit with the company.

  If neither the prevailing State assumed interest rate nor the applicable Federal interest rate is used in determining the reserve for a contract, required interest is calculated using another appropriate interest rate.

  Although required interest is a significant component of policy interest, section 812(b)(2) provides no guidance (other than the interest rates) regarding the method of calculating required interest. The legislative history that accompanied the enactment of section 812 in 1984, however, states that “the formula used for purposes of determining the policyholders’ share is based generally on the proration formula used under prior law in computing gain or loss from operations (i.e., by reference to ‘required interest’).” See H. Rep. No. 432, Pt. 2, 98th Cong., 2d Sess. 1430-31 (1984); S. Prt. 169, Vol. I, 98th Cong. 2d Sess. 557-59 (1984).

  Under section 809(a)(2) of pre-1984 law, a life insurance company’s required interest for any taxable year equaled the sum of the products obtained by multiplying (i) each rate of interest required, or assumed by the taxpayer, in calculating the reserves described in section 810(c) of pre-1984 law [now section 807(c)], by (ii) the means of the amount of the reserves computed at that rate at the beginning and the end of the taxable year. See also section 1.809-2(d) of the Income Tax Regulations. [FN1] As the formula in section 812 is based generally on the proration formula used under former section 809(a)(2), required interest under section 812(b)(2)(A) is calculated using mean reserves. Accordingly, required interest under section 812(b)(2)(A) equals the sum of products obtained by multiplying (i) the mean of the beginning-of-year and end-of-year reserves under section 807(c)(1)-(6) (other than section 807(c)(2)) by (ii) the applicable interest rate (the prevailing State assumed interest rate, the applicable Federal interest rate, or another appropriate interest rate).

  The opening balance of IC’s section 807(c)(1) life insurance reserves is  $1,000,000x and the closing balance of the reserves is $1,224,434x. The mean of the reserves is $1,112,217x. Therefore, the required interest on the life insurance reserves is $66,733x [$1,112,217x 6% = $66,733x].

HOLDING

  Required interest under s 812(b)(2)(A) is calculated using the mean of the amount of the reserve at the beginning of the taxable year and the amount of the reserve at the end of such year.

DRAFTING INFORMATION

  The principal author of this revenue ruling is Stephen Hooe of the Office of Associate Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling, contact Mr. Hooe at (202) 622-7595 (not a toll-free call).

FN1. If provisions of pre-1984 law are incorporated into a current life insurance company tax provision, the regulations under the pre-1984 law may serve as an interpretative guide to the provision in the absence of any contrary guidance in the legislative history. See H. Rep. 432, at 1401; S. Prt. 169, at 524.

 Rev. Rul. 2003-120, 2003-48 I.R.B. 1154, 2003-2 C.B. 1154

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Revenue Ruling 2003-121

Rev. Rul. 2003-121
Rev. Rul. 2003-121, 2003-48 I.R.B. 1153, 2003-2 C.B. 1153
                       Internal Revenue Service (I.R.S.)
                                 Revenue Ruling
                     LIFO; PRICE INDEXES; DEPARTMENT STORES
                           Published: December 1, 2003

 Section 472.–Last-in, First-out Inventories, 26 CFR 1.472-1: Last-in, first-out inventories.

  LIFO; price indexes; department stores. The September 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, September 30, 2003.

  LIFO; price indexes; department stores. The September 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, September 30, 2003.

  The following Department Store Inventory Price Indexes for September 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, September 30, 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             Sept. 2002   Sept. 2003     Percent
                                                                      Change
                                                                    from Sept.
                                                                     2002 to
                                                                    Sept. 2003
                                                                      [FN1]
——————————————————————————-
1.         Piece Goods ………………….. 484.6        482.6          -0.4
2.         Domestics and Draperies ……….. 574.2        559.7          -2.5
3.         Women’s and Children’s Shoes …… 658.0        651.9          -0.9
4.         Men’s Shoes ………………….. 886.9        847.3          -4.5
5.         Infants’ Wear ………………… 618.5        611.8          -1.1
6.         Women’s Underwear …………….. 548.2        517.8          -5.5
7.         Women’s Hosiery ………………. 343.2        355.5           3.6
8.         Women’s and Girls’
             Accessories ………………… 549.2        584.6           6.4
9.         Women’s Outerwear and Girls’
             Wear ………………………. 385.7        377.3          -2.2
10.        Men’s Clothing ……………….. 561.1        542.3          -3.4
11.        Men’s Furnishings …………….. 593.8        579.8          -2.4
12.        Boys’ Clothing and
             Furnishings ………………… 446.2        448.2           0.4
13.        Jewelry ……………………… 896.7        875.9          -2.3
14.        Notions ……………………… 809.1        788.2          -2.6
15.        Toilet Articles and Drugs ……… 971.4        980.4           0.9
16.        Furniture and Bedding …………. 625.9        620.7          -0.8
17.        Floor Coverings ………………. 601.1        588.6          -2.1
18.        Housewares …………………… 748.9        717.2          -4.2
19.        Major Appliances ……………… 222.2        210.3          -5.4
20.        Radio and Television …………… 47.7         44.7          -6.3
21.        Recreation and Education
             [FN2] ………………………. 85.4         81.9          -4.1
22.        Home Improvements [FN2] ……….. 124.9        123.9          -0.8
23.        Automotive Accessories [FN2] …… 112.0        111.7          -0.3
Groups 1-15: Soft Goods …………………. 578.4        568.8          -1.7
Groups 16-20: Durable Goods ……………… 407.9        391.4          -4.0
Groups 21-23: Misc. Goods [FN2] …………… 96.0         93.5          -2.6
           Store Total [FN3] …………….. 515.8        504.3          -2.2
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 Denise Carmichael of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Ms. Carmichael at (202) 622- 6888 (not a toll-free call).

 Rev. Rul. 2003-121, 2003-48 I.R.B. 1153, 2003-2 C.B. 1153

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