Revenue Ruling 2004-105
Rev. Rul. 2004-105
Rev. Rul. 2004-105, 2004-48 I.R.B. 873
                      Internal Revenue Service (I.R.S.)
                                Revenue Ruling
                    LIFO; PRICE INDEXES; DEPARTMENT STORES
                         Published: November 29, 2004
 Section 472.–Last-in, First-out Inventories, 26 CFR 1.472-1: Last-in, first-out inventories.
 LIFO; price indexes; department stores. The September 2004 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, 2004.
 LIFO; price indexes; department stores. The September 2004 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, 2004.
 The following Department Store Inventory Price Indexes for September 2004 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, 2004.
 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. 2003  Sept. 2004    Percent
                                                                     Change
                                                                      from
                                                                      Sept.
                                                                     2003 to
                                                                      Sept.
                                                                      2004
                                                                      [FN1]
——————————————————————————-
1.        Piece Goods …………………… 482.6       488.9         1.3
2.        Domestics and Draperies ………… 559.7       526.6        -5.9
3.        Women’s and Children’s Shoes ……. 651.9       657.4         0.8
4.        Men’s Shoes …………………… 847.3       842.8        -0.5
5.        Infants’ Wear …………………. 611.8       582.8        -4.7
6.        Women’s Underwear ……………… 517.8       509.6        -1.6
7.        Women’s Hosiery ……………….. 355.5       336.6        -5.3
8. Â Â Â Â Â Â Â Â Women’s and Girls’
            Accessories …………………. 584.6       576.2        -1.4
9.        Women’s Outerwear and Girls’
            Wear ……………………….. 377.3       371.0        -1.7
10.       Men’s Clothing ………………… 542.3       531.2        -2.0
11.       Men’s Furnishings ……………… 579.8       567.1        -2.2
12.       Boys’ Clothing and
            Furnishings …………………. 448.2       425.7        -5.0
13.       Jewelry ………………………. 875.9       886.2         1.2
14.       Notions ………………………. 788.2       797.8         1.2
15.       Toilet Articles and Drugs ………. 980.4       993.2         1.3
16.       Furniture and Bedding ………….. 620.7       608.0        -2.0
17.       Floor Coverings ……………….. 588.6       584.0        -0.8
18.       Housewares ……………………. 717.2       711.7        -0.8
19.       Major Appliances ………………. 210.3       197.4        -6.1
20.       Radio and Television ……………. 44.7        41.1        -8.1
21.       Recreation and Education
            [FN2] ……………………….. 81.9        79.9        -2.4
22.       Home Improvements [FN2] ………… 123.9       128.9         4.0
23.       Automotive Accessories [FN2] ……. 111.7       113.0         1.2
Groups 1-15: Soft Goods ………………….. 568.8Â Â Â Â Â Â Â 559.8Â Â Â Â Â Â Â Â -1.6
Groups 16-20: Durable Goods ………………. 391.4Â Â Â Â Â Â Â 379.8Â Â Â Â Â Â Â Â -3.0
Groups 21-23: Misc. Goods [FN2] ……………. 93.5Â Â Â Â Â Â Â Â 93.0Â Â Â Â Â Â Â Â -0.5
          Store Total [FN3] ……………… 504.3       495.4        -1.8
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. 2004-105, 2004-48 I.R.B. 873
Revenue Ruling 2004-109
Rev. Rul. 2004-109
Rev. Rul. 2004-109, 2004-50 I.R.B. 958
                      Internal Revenue Service (I.R.S.)
                                Revenue Ruling
                         SIGNING OR RATIFYING BONUSES
                          Released: November 23, 2004
                         Published: December 13, 2004
 Section 3121.–Definitions, 26 CFR 31.3121(a)-1: Wages.
(Also: ss 3306, 3401, 31.3306(b)-1, 31.3401(a)-1.)
 Signing or ratifying bonuses. This ruling holds that certain amounts paid to an employee as a signing bonus for a baseball contract or as a ratifying bonus pursuant to a collective bargaining agreement are wages for purposes of the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and the Collection of Income Tax at Source on Wages (federal income tax withholding). Rev. Ruls. 58-145 and 74-108 revoked. Rev. Ruls. 69-424 and 71-532 obsoleted.
 Signing or ratifying bonuses. This ruling holds that certain amounts paid to an employee as a signing bonus for a baseball contract or as a ratifying bonus pursuant to a collective bargaining agreement are wages for purposes of the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and the Collection of Income Tax at Source on Wages (federal income tax withholding). Rev. Ruls. 58-145 and 74-108 revoked. Rev. Ruls. 69-424 and 71-532 obsoleted.
ISSUE
 Whether certain amounts an employer pays as bonuses for signing or ratifying a contract are wages for purposes of the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and the Collection of Income Tax at Source (Federal income tax withholding)?
FACTS
 Situation 1. Baseball Club negotiates an employment contract with an individual player. It is the first contract between the Club and the player. The contract provides that the player receives a signing bonus if he reports for spring training at the time and place directed by the Club. The contract provides that the signing bonus is not contingent on the player’s future performance of services.
 Situation 2. An employer negotiates a collective bargaining agreement (CBA) with a union representing a group of its employees. The CBA will take effect on the “ratification date,” which is the date it is ratified by a majority of the union members covered by the agreement. The CBA provides that each employee covered by the terms of the agreement who is employed by the employer as of the ratification date receives a bonus. Each such employee is paid the same amount regardless of compensation, seniority, position and whether or not the employee voted for ratification. In addition, each eligible employee receives the payment even if the employee had not performed services for the employer before the ratification date. Finally, the CBA provides that the payment is not contingent on the employee’s future performance of services.
LAW
 Sections 3101 and 3111 of the Internal Revenue Code (Code) impose FICA taxes on “wages,” as that term is defined in section 3121(a), with respect to “employment,” as that term is defined in section 3121(b). FICA taxes consist of the Old-Age, Survivors and Disability Insurance tax (social security tax) and the Hospital Insurance tax (Medicare tax). These taxes are imposed on both the employer and employee. Sections 3101(a) and 3101(b) impose the employee portions of the social security tax and the Medicare tax, respectively. Sections 3111(a) and 3111(b) impose the employer portions of the social security tax and the Medicare tax, respectively.
 The term “wages” is defined in section 3121(a) for FICA purposes as all remuneration for employment, with certain specific exceptions. Section 3121(b) defines the term “employment” as any service, of whatever nature, performed by an employee for the person employing him, with certain specific exceptions.
 Section 31.3121(a)-1(b) of the Employment Tax Regulations provides that the term “wages” means all remuneration for employment unless specifically excepted under section 3121(a). Section 31.3121(a)-1(c) provides that the name by which the remuneration for employment is designated is immaterial. Salaries, fees, and bonuses are wages, if paid as compensation for employment. Section 31.3121(a)-1(d) provides that generally the basis upon which the remuneration is paid is immaterial in determining whether the remuneration is wages. Section 31.3121(b)-3(b) defines employment as services performed by an employee for an employer, unless specifically excepted under section 3121(b).
 The FUTA taxation provisions are similar to the FICA provisions, except that only the employer pays the tax imposed under FUTA. See sections 3301 and 3306(b) and the regulations thereunder. Although there are differences in the statutory exceptions to what constitutes wages and employment, the general definitions of the terms “wages” and “employment” for FUTA purposes are similar to the definitions for FICA purposes. See sections 3306(b) and 3306(c).
 Section 3402(a), relating to Federal income tax withholding, generally requires every employer making a payment of wages to deduct and withhold upon those wages a tax determined in accordance with prescribed tables or computational procedures. The term “wages” is defined in section 3401(a) for Federal income tax withholding purposes as all remuneration for services performed by an employee for his employer, with certain specific exceptions. Section 31.3401(a)-1(a)(2) provides that the name by which remuneration for services is designated is immaterial. Thus, salaries, fees and bonuses are wages if paid as compensation for services performed by the employee for his employer. Section 31.3401(a)-1(a)(3) provides that generally the basis upon which the remuneration is paid is immaterial in determining whether the remuneration is wages. Unlike the FICA and the FUTA, the Federal income tax withholding provisions do not include a definition of employment.
 Revenue Ruling 58-145, 1958-1 C.B. 360, in answering four specific questions, holds that a bonus paid by a baseball club to an
individual solely for signing the individual’s first contract and not in any way contingent on the performance of subsequent services is not remuneration for services and, therefore, is not wages for purposes of Federal income tax withholding under section 3402. The ruling further holds that a bonus paid to a baseball player that is contingent upon the performance of subsequent services is wages subject to Federal income tax withholding.
 Revenue Ruling 69-424, 1969-2 C.B. 15, holds that amounts paid by a baseball club for educational expenses of a minor league baseball player attending college were not scholarships excluded from income under section 117 because the payments were “compensation for past, present or future employment services” within the meaning of section 1.117-4 of the Income Tax Regulations. The contract provided that the club was not required to make the payments if the player failed to attend the college for two consecutive years without proper reason, did not report for spring training as directed by the club, or was placed on the voluntarily retired, disqualified or ineligible list. The ruling holds that the payments are wages for Federal income tax withholding and FICA purposes.
 Revenue Ruling 71-532, 1971-2 C.B. 356, holds that Rev. Rul. 69-424 is to be applied without retroactive effect with respect to wages paid prior to January 1, 1970. The ruling makes clear that the amount paid for certain educational expenses under the employment contract described in Rev. Rul. 69-424 is distinguishable from the bonus paid solely as consideration for signing a contract described in Rev. Rul. 58-145, but nonetheless limits the retroactive effect of Rev. Rul. 69-424.
 Rev. Rul. 74-108, 1974-1 C.B. 248, analyzes whether a sign-on fee paid by a domestic corporation that operates a professional soccer club to a non-resident alien player as an inducement not to negotiate with any other team is treated as income from sources within or without the United States. Rev. Rul. 74-108 cites Rev. Rul. 58-145 as authority for the conclusion that the sign-on fee is not compensation for labor or personal services and that, therefore, source is not determined under the rules in section 861(a)(3) or 862(a)(3). Instead, Rev. Rul. 74-108 characterized the sign-on fee as a payment for a covenant not to compete both within and without the United States, with the result that the sign-on fee was attributable to sources both within and without the United States.
ANALYSIS
 The Code and regulations provide that amounts an employer pays an employee as remuneration for employment are wages, unless a specific exception applies. Sections 3121(a), 3306(b), and 3401(a) and sections 31.3121(a)-1(b), 31.3306(b)-1(b), and 31.3401(a)-1(a)(1) of the regulations. The regulations also provide that the name by which the remuneration is designated is immaterial. Salaries, fees, and bonuses, for example, are all wages, if paid as compensation for employment. Sections 31.3121(a)-1(c), 31.3306(b)- 1(c), and 31.3401(a)-1(a)(2).
 The Code and the regulations also provide that any service of whatever nature performed by an employee for the person employing him is employment, unless a specific exemption applies. Sections 3121(b) and 3306(c) and sections 31.3121(b)-3(b) and 31.3306(c)-2(b).
 Employment encompasses the establishment, maintenance, furtherance, alteration, or cancellation of the employer-employee relationship or any of the terms and conditions thereof. If the employee provides clear, separate, and adequate consideration for the employer’s payment that is not dependent upon the employer-employee relationship and its component terms and conditions, the payment is not wages for purposes of FICA, FUTA, or Federal income tax withholding.
 Under the facts presented in Situation 1, the individual receives the signing bonus in connection with establishing the employer-employee relationship. The individual does not provide clear, separate, and adequate consideration for the payment that is not dependent upon the employer-employee relationship and its component terms and conditions. Thus, the signing bonus is part of the compensation the Baseball Club pays as remuneration for employment, making it wages regardless of the fact that the contract provides that the bonus is not contingent on the performance of future services.
 Under the facts presented in Situation 2, the employees receive the ratification bonus payments as part of a bargain that establishes the terms and conditions of the employment relationship with all of the employees covered by the CBA. The employees do not provide clear, separate, and adequate consideration for the employer’s payments that is not dependent upon the employer-employee relationship and its component terms and conditions. The payments are part of the compensation the employer pays as remuneration for employment. Thus, the ratification bonuses are wages regardless of the fact that they are uniform in amount, do not vary based on seniority or position or any other factor, and are not explicitly contingent on the performance of services.
 Revenue Ruling 58-145 considered whether Federal income tax withholding applied to a bonus paid to a baseball player at the time a first contract was signed with a baseball club. It erred in its analysis by failing to apply the Code and regulations appropriately to the question of whether the bonus was wages in each of the four questions presented. Specifically, it failed to apply the correct definition of wages and to consider whether the bonus was paid in connection with establishing the employer-employee relationship. Accordingly, Rev. Rul. 58-145 is revoked. In addition, Rev. Rul. 74-108 is revoked as its conclusion relies upon Rev. Rul. 58-145.
HOLDING
 Amounts an employer pays as bonuses for signing or ratifying a contract in connection with the establishment of the employer-employee relationship are wages for purposes of FICA, FUTA, and Federal income tax withholding. Accordingly, the payments in Situations 1 and 2 are wages for purposes of FICA, FUTA, and Federal income tax withholding.
EFFECT ON OTHER RULINGS
 Rev. Rul. 58-145 and Rev. Rul. 74-108 are revoked. Rev. Rul. 69-424 and Rev. Rul. 71-532 are obsoleted in view of the amendment of section 117 by section 123(a) of the Tax Reform Act of 1986, 1986-3 (Vol.1) C.B. 1, 29. See section 117(c) and Notice 87-31, 1987-1 C.B. 475.
APPLICATION
 Under the authority of section 7805(b), the Service will not apply the position adopted in this ruling to any signing bonus, sign-on fee, or similar amount paid to an employee in connection with the employee’s initial employment with the employer pursuant to a sign-on agreement or other contract entered into before January 12, 2005, provided the amount is paid under facts and circumstances that are substantially the same as in Rev. Rul. 58-145 or Rev. Rul. 74-108.
DRAFTING INFORMATION
 The principal authors of this revenue ruling are Marie Cashman and Stephen Suetterlein of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt & Government Entities). For further information regarding this revenue ruling, contact Mr. Suetterlein at (202) 622-6040 (not a toll-free call).
 Rev. Rul. 2004-109, 2004-50 I.R.B. 958
Revenue Ruling 2004-110
Rev. Rul. 2004-110
Rev. Rul. 2004-110, 2004-50 I.R.B. 960
                      Internal Revenue Service (I.R.S.)
                                Revenue Ruling
                  CONTRACT CANCELLATION; EMPLOYMENT CONTRACT
                          Released: November 23, 2004
                         Published: December 13, 2004
 26 CFR 31.3121(a)-1: Wages.
(Also: ss 1221, 1222. 3306, 3401, 1.1221-1, 1.1222-1, 31.3306(b)-1, 31.3401(a)- 1.)
 Contract cancellation; employment contract. This ruling holds that an amount paid to an employee as consideration for cancellation of an employment contract and relinquishment of contract rights is ordinary income and wages for purposes of the
Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and the Collection of Income Tax at Source (federal income tax withholding). Rev. Ruls. 55-520 and 58-301 modified and superseded. Rev. Ruls. 74-252 and 75-44 modified.
 Contract cancellation; employment contract. This ruling holds that an amount paid to an employee as consideration for cancellation of an employment contract and relinquishment of contract rights is ordinary income and wages for purposes of the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and the Collection of Income Tax at Source (federal income tax withholding). Rev. Ruls. 55-520 and 58-301 modified and superseded. Rev. Ruls. 74-252 and 75-44 modified.
ISSUE
 Whether an amount paid to an employee as consideration for the cancellation of an employment contract and relinquishment of contract rights is ordinary income, and wages for purposes of the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and the Collection of Income Tax at Source (Federal income tax withholding)?
FACTS
 An employee performs services under a written employment contract providing for a specified number of years of employment. The contract does not provide for any payments to be made by either party in the event the contract is cancelled by mutual agreement. Before the end of the contract period, the employee and the employer agree to cancel the contract and negotiate a payment from the employer to the employee in consideration for the employee’s relinquishment of his contract rights to the remaining period of employment.
LAW
Ordinary Income
 Section 1(h) of the Internal Revenue Code (Code) provides for maximum capital gains tax rates on net capital gain.
 Section 1222(11) defines “net capital gain” as the excess of net long-term capital gain over net short-term capital loss. Under section 1222(3), the term “long-term capital gain” means gain from the sale or exchange of a capital asset held for more than one year.
 Section 1221 provides that the term “capital asset” means property held by the taxpayer, with certain exclusions listed in section 1221(a)(1)-(8).
 Section 1231 provides generally for capital gain or loss if there is net gain from the sale or exchange of property used in a trade or business and from certain involuntary conversions of business or investment property.
 The United States Supreme Court has held that not everything that can be called “property” in the ordinary sense and that is outside the statutory exclusions in section 1221 or section 1231 qualifies as a “capital asset” under section 1221 or for purposes of section 1231, and that the term does not include certain claims or rights, the consideration for which essentially substitutes for ordinary income. See Commissioner v. Gillette Motor Transport, Inc., 364 U.S. 130, 134-136 (1960), Ct. D. 1853, 1960-2 C.B. 466, 468; Commissioner v. P.G. Lake, Inc., 356 U.S. 260, 265-67 (1958), Ct. D. 1823, 1958-1 C.B. 516, 518-19. Under this line of Supreme Court decisions, it is settled that consideration received for the transfer or termination of a right to receive income for the past or future performance of services is taxable as ordinary income. See, e.g., Rothstein v. Commissioner, 90 T.C. 488, 493-94 (1988).
Wages
 Sections 3101 and 3111 impose FICA taxes on “wages,” as that term is defined in section 3121(a), with respect to “employment,” as that term is defined in section 3121(b). FICA taxes consist of the Old-Age, Survivors and Disability Insurance tax (social security tax) and the Hospital Insurance tax (Medicare tax). These taxes are imposed on both the employer and employee. Sections 3101(a) and 3101(b) impose the employee portions of the social security tax and the Medicare tax, respectively. Sections 3111(a) and 3111(b) impose the employer portions of the social security tax and the Medicare tax, respectively.
 The term “wages” is defined in section 3121(a) for FICA purposes as all remuneration for employment, with certain specific exceptions. Section 3121(b) defines “employment” as any service, of whatever nature, performed by an employee for the person employing him, with certain specific exceptions.
 Section 31.3121(a)-1(b) of the Employment Tax Regulations provides that the term “wages” means all remuneration for employment unless specifically excepted under section 3121(a). Section 31.3121(a)-1(c) provides that the name by which the remuneration for employment is designated is immaterial. Section 31.3121(a)-1(d) provides that generally the basis upon which the remuneration is paid is immaterial in determining whether the remuneration is wages. Section 31.3121(b)-3(b) defines employment as services performed by an employee for an employer, unless specifically excepted under section 3121(b).
 Section 31.3121(a)-1(i) provides that remuneration, unless specifically excepted, constitutes wages even though at the time paid the relationship of employer and employee no longer exists between the person in whose employ the services were performed and the individual who performed them.
 The FUTA taxation provisions are similar to the FICA provisions, except that only the employer pays the tax imposed under FUTA. See sections 3301 and 3306(b) and the regulations thereunder. Although there are differences in the statutory exceptions to what constitutes wages and employment, the general definitions of the terms “wages” and “employment” for FUTA purposes are similar to the definitions for FICA purposes. See sections 3306(b) and 3306(c).
 Section 3402(a), relating to Federal income tax withholding, generally requires every employer making a payment of wages to deduct and withhold upon those wages a tax determined in accordance with prescribed tables or computational procedures. The term “wages” is defined in section 3401(a) for Federal income tax withholding purposes as all remuneration for services performed by an employee for his employer, with certain specific exceptions. Section 31.3401(a)-1(a)(2) provides that the name by which remuneration for services is designated is immaterial. Section 31.3401(a)-1(a)(3) provides that generally the basis upon which the remuneration is paid is immaterial in determining whether the remuneration is wages. Unlike the FICA and the FUTA, the Federal income tax withholding provisions do not include a definition of employment.
 Section 31.3401(a)-1(a)(5) provides that remuneration, unless specifically excepted, constitutes wages even though at the time paid the relationship of employer and employee no longer exists between the person in whose employ the services were performed and the individual who performed them.
 Revenue Ruling 55-520, 1955-2 C.B. 393, concludes that an amount paid to an individual as a compromise settlement for the cancellation, before the normal expiration date, of a two-year employment contract is not wages for FICA and Federal income tax withholding purposes. The ruling further concludes that the payment is includible in the employee’s gross income for Federal income tax purposes.
 Revenue Ruling 58-301, 1958-1 C.B. 23, concludes that a lump sum payment received by an employee as consideration for his agreement to cancel the remaining period of a five-year employment contract during the second year of the term and to relinquish his contract rights is ordinary income, not capital gain, and is includible in his gross income in the year of receipt. The ruling further concludes that the payment is not subject to FICA and Federal income tax withholding.
 Revenue Ruling 74-252, 1974-1 C.B. 287, concludes that payments made by an employer to an employee, following involuntary termination, under the provisions of a three-year contract are wages for FICA, FUTA, and Federal income tax withholding purposes. Under the terms of the contract, the employer could terminate the relationship at any time, provided the employee was paid an amount equal to an additional six months salary. The ruling distinguishes Rev. Rul. 58-301 on the basis that these payments are in the nature of dismissal payments provided for under the terms of the contract, rather than as consideration for the relinquishment of interests the employee had in the employment contract.
 Revenue Ruling 75-44, 1975-1 C.B. 15, involves an employer’s payment to a railroad employee as consideration for the employee’s agreement to perform a different type of work and refrain from asserting his employment rights acquired pursuant to his past service under a general contract of employment. The ruling concludes that the payment received by the employee is ordinary income in the taxable year of receipt and is “compensation” for purposes of the Railroad Retirement Tax Act (RRTA) and “wages” for purposes of Federal income tax withholding. This ruling distinguishes Rev. Rul. 58-301 on the basis that in Rev. Rul. 58-301 the lump sum payment was primarily in consideration of the cancellation of the employee’s original contract rights rather than primarily in consideration of the past performance of services through which the relinquished employment rights were acquired.
ANALYSIS
 The Code and regulations provide that amounts an employer pays an employee as remuneration for employment are wages, unless a specific exception applies. Sections 3121(a), 3306(b), and 3401(a) and sections 31.3121(a)- 1(b), 31.3306(b)-1(b), and 31.3401(a)-1(a)(1) of the regulations. The regulations also provide that the name by which the remuneration is designated is immaterial. Sections 31.3121(a)-1(c), 31.3306(b)-1(c), and 31.3401(a)-1(a)(2). Furthermore, the remuneration is wages even though at the time paid the relationship of employer and employee no longer exists. Sections 31.3121(a)-1(i), 31.3306(b)- 1(i), and 31.3401(a)-1(a)(5).
 The Code and the regulations also provide that any service of whatever nature performed by an employee for the person employing him is employment, unless a specific exemption applies. Sections 3121(b) and 3306(c) and sections 31.3121(b)-3(b) and 31.3306(c)-2(b).
 Employment encompasses the establishment, maintenance, furtherance, alteration, or cancellation of the employer-employee relationship or any of the terms and conditions thereof. If the employee provides clear, separate, and adequate consideration for the employer’s payment that is not dependent upon the employer-employee relationship and its component terms and conditions, the payment is not wages for purposes of FICA, FUTA, or Federal income tax withholding.
 Under the facts presented in this ruling, the employee receives the payment as consideration for canceling the remaining period of his employment contract and relinquishing his contract rights. As such, the payment is part of the compensation the employer pays as remuneration for employment. The employee does not provide clear, separate, and adequate consideration for the employer’s payment that is not dependent upon the employer-employee relationship and its component terms and conditions. Thus, the payment provided by the employer to the employee is wages for purposes of FICA, FUTA, and Federal income tax withholding. This conclusion applies regardless of the name by which the remuneration is designated or whether the employment relationship still exists at the time the payment is made.
 With respect to the application of FICA and Federal income tax withholding, Rev. Rul. 55-520 and Rev. Rul. 58-301 erred in their analysis by failing to apply the Code and regulations appropriately to the question of whether the payments made in cancellation of the employment contract were wages.
 To qualify as capital gain, eligible for the reduced rates in section 1(h), a payment must be received in connection with a “sale or exchange” of “property,” as those terms are used in sections 1221, 1222, and 1231. Under Gillette Motor, P.G. Lake, and the settled line of authority applying the Supreme Court’s reasoning to compensation-related rights, consideration received for the transfer or termination of a right to receive income for the past or future performance of services is a substitute for ordinary income, taxable as such. The payment received by the employee in the present situation is a payment of this type, and for capital gains purposes is not a payment for property. It is therefore taxable to the employee as ordinary income.
 With respect to the ordinary or capital character of a payment, the payments in Rev. Rul. 55-520, Rev. Rul. 58-301, Rev. Rul.
74-252, and Rev. Rul. 75-44 are ordinary income; in particular, the specific holdings to this effect in Rev. Rul. 58-301 and Rev. Rul. 75-44 remain correct.
 Accordingly, Rev. Rul. 55-520 and Rev. Rul. 58-301 are modified and superseded. In addition, Rev. Rul. 74-252 and Rev. Rul. 75-44 are modified to the extent their holdings regarding FICA, FUTA, RRTA, and Federal income tax withholding rely on distinguishing Rev. Rul. 58-301.
HOLDING
 An amount paid to an employee as consideration for cancellation of an employment contract and relinquishment of contract rights is ordinary income, and wages for purposes of FICA, FUTA, and Federal income tax withholding.
EFFECT ON OTHER REVENUE RULINGS
 Rev. Rul. 55-520 and Rev. Rul. 58-301 are modified and superseded. Rev. Rul. 74-252 and Rev. Rul. 75-44 are modified.
APPLICATION
 Under the authority of section 7805(b), the Service will not apply the position adopted in this ruling to any payment that an employer made to an employee or former employee before January 12, 2005, provided that the payment is made under facts and circumstances that are substantially the same as in Rev. Rul. 55-520 or Rev. Rul. 58-301.
DRAFTING INFORMATION
 The principal authors of this revenue ruling are Michael Swim and Elliot Rogers of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt & Government Entities). For further information regarding this revenue ruling, contact Mr. Rogers at (202) 622-6040 (not a toll-free call).
 Rev. Rul. 2004-110, 2004-50 I.R.B. 960
Revenue Ruling 2004-106
Rev. Rul. 2004-106
Rev. Rul. 2004-106, 2004-49 I.R.B. 893
                      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 17, 2004
                          Published: December 6, 2004
 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 2004.
Section 280G.–Golden Parachute Payments
  Federal short-term, mid-term, and long-term rates are set forth for the month of December 2004.
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 2004.
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 2004.
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 2004.
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 2004.
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 2004.
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 2004.
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 2004.
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 2004.
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 2004.
Section 1288.–Treatment of Original Issue Discount on Tax-Exempt Obligations
 The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2004.
Section 7520.–Valuation Tables
 The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2004.
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 2004.
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, 642, 1274, 1288, and other sections of the Code, tables set forth the rates for December 2004.
 Federal rates; adjusted federal rates; adjusted federal long-term rate and the long-term exempt rate. For purposes of sections 382, 642, 1274, 1288, and other sections of the Code, tables set forth the rates for December 2004.
 This revenue ruling provides various prescribed rates for federal income tax purposes for December 2004 (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 an 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 2005 interest rate for sections 846 and 807.
——————————————————–
              REV. RUL. 2004-106 TABLE 1
   Applicable Federal Rates (AFR) for December 2004
                Period for Compounding
           Annual     Semiannual Quarterly Monthly
Short-term
      AFR 2.48%      2.46%      2.45%     2.45%
 110% AFR 2.73%      2.71%      2.70%     2.69%
 120% AFR 2.97%      2.95%      2.94%     2.93%
 130% AFR 3.23%      3.20%      3.19%     3.18%
 Mid-term
      AFR 3.56%      3.53%      3.51%     3.50%
 110% AFR 3.92%      3.88%      3.86%     3.85%
 120% AFR 4.28%      4.24%      4.22%     4.20%
 130% AFR 4.64%      4.59%      4.56%     4.55%
 150% AFR 5.37%      5.30%      5.27%     5.24%
 175% AFR 6.28%      6.18%      6.13%     6.10%
 Long-term
      AFR 4.68%      4.63%      4.60%     4.59%
 110% AFR 5.15%      5.09%      5.06%     5.04%
 120% AFR 5.64%      5.56%      5.52%     5.50%
 130% AFR 6.11%      6.02%      5.98%     5.95%
——————————————————–
—————————————————————
                 REV. RUL. 2004-106 TABLE 2
               Adjusted AFR for December 2004
                   Period for Compounding
                        Annual Semiannual Quarterly Monthly
Short-term adjusted AFRÂ 1.88%Â Â 1.87%Â Â Â Â Â Â 1.87%Â Â Â Â Â 1.86%
Mid-term adjusted AFRÂ Â Â 2.84%Â Â 2.82%Â Â Â Â Â Â 2.81%Â Â Â Â Â 2.80%
Long-term adjusted AFRÂ Â 4.19%Â Â 4.15%Â Â Â Â Â Â 4.13%Â Â Â Â Â 4.11%
—————————————————————
——————————————————————————-
                         REV. RUL. 2004-106 TABLE 3
                  Rates Under Section 382 for December 2004
Adjusted federal long-term rate for the current month                    4.19%
Long-term tax-exempt rate for ownership changes during the current month 4.27%
 (the highest of the adjusted federal long-term rates for the current
 month and the prior two months.)
——————————————————————————-
——————————————————————————-
                         REV. RUL. 2004-106 TABLE 4
      Appropriate Percentages Under Section 42(b)(2) for December 2004
Appropriate percentage for the 70% present value low-income housing      7.96%
 credit
Appropriate percentage for the 30% present value low-income housing      3.41%
 credit
——————————————————————————-
——————————————————————————-
                         REV. RUL. 2004-106 TABLE 5
                  Rate Under Section 7520 for December 2004
Applicable federal rate for determining the present value of an annuity, 4.20%
 an interest for life or a term of years, or a remainder or
  reversionary interest
——————————————————————————-
——————————————————————————-
                         REV. RUL. 2004-106 TABLE 6
Applicable rate of interest for 2005 for purposes of sections 846 and    4.44%
 807
——————————————————————————-
 Rev. Rul. 2004-106, 2004-49 I.R.B. 893
Revenue Ruling 2004-104
Rev. Rul. 2004-104
Rev. Rul. 2004-104, 2004-46 I.R.B. 837
                      Internal Revenue Service (I.R.S.)
                                Revenue Ruling
             2005 COVERED COMPENSATION TABLES; PERMITTED DISPARITY
                         Published: November 15, 2004
 Section 401.–Qualified Pension, Profit-Sharing, and Stock Bonus Plans, 26 CFR 1.401(l)-1: Permitted disparity in employer-provided contributions or benefits.
 2005 covered compensation tables; permitted disparity. The covered compensation tables under section 401 of the Code for the year 2005 are provided for use in determining contributions to defined benefit plans and permitted disparity.
 2005 covered compensation tables; permitted disparity. The covered compensation tables under section 401 of the Code for the year 2005 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(1)(5)(E) of the Internal Revenue Code (the “Code”) and the Income Tax Regulations, thereunder, for the 2005 plan year.
 Section 401(1)(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(1)(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(1)-1(c)(34) of the Income Tax Regulations defines the taxable wage base as the contribution and benefit base under section 230 of the Act.
 Section 1.401(1)-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(1)-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(1)-1(c)(7)(i) is the taxable wage base in effect as of the beginning of the plan year.
 Section 1.401(1)-1(c)(7)(ii) provides that, for purposes of determining the amount of an employee’s covered compensation under s 1.401(1)-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 2005 year, the taxable wage base is $90,000.
 The following tables provide covered compensation for 2005:
                       2005 COVERED COMPENSATION TABLE
CALENDAR YEAR OF BIRTHÂ Â Â CALENDAR YEAR OF SOCIALÂ Â Â Â 2005 COVERED COMPENSATION
                         SECURITY RETIREMENT 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                                46,344
        1940                      2006                                48,696
        1941                      2007                                51,012
        1942                      2008                                53,268
        1943                      2009                                55,464
        1944                      2010                                57,636
        1945                      2011                                59,772
        1946                      2012                                61,872
        1947                      2013                                63,936
        1948                      2014                                65,856
        1949                      2015                                67,680
        1950                      2016                                69,408
        1951                      2017                                71,052
        1952                      2018                                72,600
        1953                       2019                                74,100
        1954                      2020                                75,540
        1955                      2022                                78,228
        1956                      2023                                79,512
        1957                      2024                                80,712
        1958                      2025                                81,816
        1959                      2026                                82,860
        1960                      2027                                83,844
        1961                      2028                                84,780
        1962                      2029                                85,620
        1963                      2030                                86,436
        1964                      2031                                87,216
        1965                      2032                                87,924
        1966                      2033                                88,536
        1967                      2034                                89,040
        1968                      2035                                89,424
        1969                      2036                                89,700
        1970                      2037                                89,844
        1971                      2038                                89,940
   1972 and later                 2039                                90,000
 2005 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 Â Â Â Â Â Â Â 39,000
1938 - 1939Â Â Â Â Â Â Â Â 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 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 Â Â Â Â Â Â Â 51,000
1942 - 1943Â Â Â Â Â Â Â Â 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 Â Â Â Â Â Â Â 57,000
1945Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 60,000
1946-1947Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 63,000
1948Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 66,000
1949-1950Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 69,000
1951-1952Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 72,000
1953-1954Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 75,000
1955Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 78,000
1956-1958Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 81,000
1959-1961Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 84,000
1962 - 1965Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 87,000
1966 and later             90,000
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. Isaacs’s number is (202) 283-9710 (not a toll-free number).
 Rev. Rul. 2004-104, 2004-46 I.R.B. 837
Revenue Ruling 2004-107
Rev. Rul. 2004-107
Rev. Rul. 2004-107, 2004-47 I.R.B. 852
                      Internal Revenue Service (I.R.S.)
                                Revenue Ruling
              SECTION 1274A — INFLATION ADJUSTED NUMBERS FOR 2005
                          Released: November 3, 2004
                         Published: November 22, 2004
 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 2005 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 2005 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 2005. This ruling provides the dollar amounts, increased by the 2005 inflation adjustment, for section 1274A of the Code. Rev. Rul. 2003-119 supplemented and superseded.
 Section 1274A-inflation adjusted numbers for 2005. This ruling provides the dollar amounts, increased by the 2005 inflation adjustment, for section 1274A of the Code. Rev. Rul. 2003-119 supplemented and superseded.
 This revenue ruling provides the dollar amounts, increased by the 2005 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. 2004-107 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)
——————Â —————————-Â —————————–
      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
      2005                 $4,483,000                   $3,202,100
——————————————————————————-
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. 2003-119, 2003-2 C.B. 1094, 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. 2004-107, 2004-47 I.R.B. 852
Revenue Ruling 2004-108
Rev. Rul. 2004-108
Rev. Rul. 2004-108, 2004-47 I.R.B. 853
                      Internal Revenue Service (I.R.S.)
                                Revenue Ruling
                 CPI ADJUSTMENT FOR BELOW-MARKET LOANS FOR 2005
                          Released: November 3, 2004
                         Published: November 22, 2004
 Section 7872.–Treatment of Loans With Below-Market Interest Rates
 CPI adjustment for below-market loans for 2005. 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 1987-2005. Rev. Rul. 2003-118 supplemented and superseded.
 CPI adjustment for below-market loans for 2005. 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 1987-2005. Rev. Rul. 2003-118 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 1987-2005.
——————————————————————————-
                             REV. RUL. 2004-108
                                   TABLE 1
                          Limit under s 7872(g)(2)
Year                                                 Amount
———————————Â ——————————————–
Before 1987Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $ 90,000
1987Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $ 92,200
1988Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $ 94,800
1989Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $ 98,800
1990Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $103,500
1991Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $108,600
1992Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $114,100
1993Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $117,500
1994Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $121,100
1995Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $124,300
1996Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $127,800
1997Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $131,300
1998Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $134,800
1999Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $137,000
2000Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $139,700
2001Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $144,100
2002Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $148,800
2003Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $151,000
2004Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $154,500
2005Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $158,100
——————————————————————————-
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. 2003-118, 2003-2 C.B. 1095, 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. 2004-108, 2004-47 I.R.B. 853
Revenue Ruling 2004-99
Rev. Rul. 2004-99
Rev. Rul. 2004-99, 2004-44 I.R.B. 720
                      Internal Revenue Service (I.R.S.)
                                Revenue Ruling
                          2004 BASE PERIOD T-BILL RATE
                          Published: November 1, 2004
 Section 995.–Taxation of DISC Income to Shareholders
 2004 base period T-bill rate. The “base period T-bill rate” for the period ending September 30, 2004, is published as required by section 995(f) of the Code.
 2004 base period T-bill rate. The “base period T-bill rate” for the period ending September 30, 2004, 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, 2004 is 1.60 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 2004 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. 2003-111, 2003-45 I.R.B. 1009, 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).
 2004 ANNUAL RATE, COMPOUNDED DAILY
    DAYS       1.60 PERCENT FACTOR
————————————
      1            .000043716
      2            .000087434
      3            .000131153
      4            .000174875
      5            .000218598
      6            .000262324
      7            .000306051
      8            .000349780
      9            .000393511
     10             .000437244
     11            .000480979
     12            .000524716
     13            .000568455
     14            .000612196
     15            .000655938
     16            .000699683
     17            .000743429
     18            .000787178
     19            .000830928
     20            .000874680
     21            .000918434
     22            .000962190
     23            .001005948
     24            .001049708
     25            .001093470
     26            .001137233
     27            .001180999
     28            .001224766
     29            .001268536
     30            .001312307
     31            .001356080
     32            .001399855
     33            .001443632
     34            .001487411
     35            .001531192
     36            .001574975
     37            .001618760
     38            .001662546
     39            .001706335
     40            .001750125
     41            .001793918
     42            .001837712
     43            .001881508
     44            .001925306
     45            .001969106
     46            .002012908
     47            .002056712
     48            .002100518
     49            .002144325
     50            .002188135
     51            .002231947
     52            .002275760
     53            .002319575
     54            .002363393
     55            .002407212
     56            .002451033
     57            .002494856
     58            .002538681
     59            .002582508
     60            .002626336
     61            .002670167
     62            .002714000
     63            .002757834
     64            .002801670
     65            .002845509
     66            .002889349
     67            .002933191
     68            .002977035
     69            .003020881
     70            .003064729
     71            .003108579
     72            .003152431
     73            .003196284
     74            .003240140
     75            .003283997
     76            .003327857
     77            .003371718
     78            .003415581
     79            .003459447
     80            .003503314
     81            .003547183
     82            .003591054
     83            .003634926
     84            .003678801
     85            .003722678
     86            .003766556
     87            .003810437
     88            .003854319
     89            .003898204
     90            .003942090
     91            .003985978
     92            .004029868
     93            .004073760
     94            .004117654
     95            .004161550
     96            .004205448
     97            .004249347
     98            .004293249
     99            .004337153
     100           .004381058
     101           .004424965
     102           .004468875
     103           .004512786
     104           .004556699
     105           .004600614
     106           .004644531
     107           .004688450
     108           .004732371
     109           .004776293
     110           .004820218
     111           .004864145
     112           .004908073
     113           .004952004
     114           .004995936
     115           .005039870
     116           .005083806
     117           .005127744
     118           .005171684
     119           .005215626
     120           .005259570
     121           .005303516
     122           .005347464
     123           .005391413
     124           .005435365
     125           .005479318
     126           .005523274
     127           .005567231
     128           .005611190
     129           .005655151
     130           .005699114
     131           .005743079
     132           .005787046
     133           .005831015
     134           .005874986
     135           .005918959
     136           .005962933
     137           .006006910
     138           .006050888
     139           .006094869
     140           .006138851
     141           .006182835
     142           .006226821
     143           .006270809
     144           .006314799
     145           .006358791
     146           .006402785
     147           .006446781
     148           .006490778
     149           .006534778
     150           .006578779
     151           .006622783
     152           .006666788
     153           .006710796
     154           .006754805
     155           .006798816
     156           .006842829
     157           .006886844
     158           .006930861
     159           .006974880
     160           .007018900
     161           .007062923
     162           .007106948
     163           .007150974
     164           .007195003
     165           .007239033
     166           .007283065
     167           .007327100
     168           .007371136
     169           .007415174
     170           .007459214
     171           .007503256
     172           .007547300
     173           .007591345
     174           .007635393
     175           .007679443
     176           .007723494
     177           .007767548
     178           .007811603
     179           .007855661
     180           .007899720
     181           .007943781
     182           .007987844
     183           .008031909
     184           .008075976
     185           .008120045
     186           .008164116
     187           .008208189
     188           .008252263
     189           .008296340
     190           .008340418
     191           .008384499
     192           .008428581
     193           .008472666
     194           .008516752
     195           .008560840
     196           .008604930
     197           .008649022
     198           .008693116
     199           .008737212
     200           .008781310
     201           .008825409
     202           .008869511
     203           .008913615
     204           .008957720
     205           .009001828
     206           .009045937
     207           .009090048
     208           .009134162
     209           .009178277
     210           .009222394
     211           .009266513
     212           .009310634
     213           .009354757
     214           .009398881
     215           .009443008
     216           .009487137
     217           .009531267
     218           .009575400
     219           .009619534
     220           .009663671
     221           .009707809
     222           .009751949
     223           .009796091
     224           .009840236
     225           .009884382
     226           .009928529
     227           .009972679
     228           .010016831
     229           .010060985
     230           .010105141
     231           .010149298
     232           .010193458
     233           .010237619
     234           .010281783
     235           .010325948
     236           .010370115
     237           .010414284
     238           .010458455
     239           .010502629
     240           .010546803
     241           .010590980
     242           .010635159
     243           .010679340
     244           .010723523
     245           .010767707
     246           .010811894
     247           .010856082
     248           .010900273
     249           .010944465
     250           .010988660
     251           .011032856
     252           .011077054
     253           .011121254
     254           .011165456
     255           .011209660
     256           .011253866
     257           .011298074
     258           .011342283
     259           .011386495
     260           .011430709
     261           .011474924
     262           .011519142
     263           .011563361
     264           .011607583
     265           .011651806
     266           .011696031
     267           .011740258
     268           .011784487
     269           .011828718
     270           .011872951
     271           .011917186
     272           .011961423
     273           .012005662
     274           .012049902
     275           .012094145
     276           .012138390
     277           .012182636
     278           .012226884
     279           .012271135
     280           .012315387
     281           .012359641
     282           .012403897
     283           .012448156
     284           .012492416
     285           .012536678
     286           .012580941
     287           .012625207
     288           .012669475
     289           .012713745
     290           .012758016
     291           .012802290
     292           .012846565
     293           .012890843
     294           .012935122
     295           .012979404
     296           .013023687
     297            .013067972
     298           .013112259
     299           .013156548
     300           .013200839
     301           .013245132
     302           .013289427
     303           .013333724
     304           .013378023
     305           .013422323
     306           .013466626
     307           .013510930
     308           .013555237
     309           .013599545
     310           .013643856
     311           .013688168
     312           .013732482
     313           .013776798
     314           .013821117
     315           .013865437
     316           .013909759
     317           .013954082
     318           .013998408
     319           .014042736
     320           .014087066
     321           .014131398
     322           .014175731
     323           .014220067
     324           .014264404
     325           .014308744
     326           .014353085
     327           .014397428
     328           .014441774
     329           .014486121
     330           .014530470
     331           .014574821
     332           .014619174
     333           .014663529
     334           .014707886
     335           .014752245
     336           .014796605
     337           .014840968
     338           .014885333
     339           .014929699
     340           .014974068
     341           .015018438
     342           .015062811
     343           .015107185
     344           .015151561
     345           .015195939
     346           .015240320
     347           .015284702
     348           .015329086
     349           .015373472
     350           .015417860
     351           .015462249
     352           .015506641
     353           .015551035
     354           .015595431
     355           .015639828
     356           .015684228
     357           .015728629
     358           .015773033
     359           .015817438
     360           .015861845
     361           .015906255
     362           .015950666
     363           .015995079
     364           .016039494
     365           .016083911
     366           .016128330
     367           .016172751
     368           .016217174
     369           .016261599
     370           .016306025
     371           .016350454
 Rev. Rul. 2004-99, 2004-44 I.R.B. 720
Revenue Ruling 2004-101
Rev. Rul. 2004-101
Rev. Rul. 2004-101, 2004-44 I.R.B. 719
                      Internal Revenue Service (I.R.S.)
                                Revenue Ruling
                    LIFO; PRICE INDEXES; DEPARTMENT STORES
                          Published: November 1, 2004
 Section 472.–Last-in, First-out Inventories, 26 CFR 1.472-1: Last-in, first-out inventories.
 LIFO; price indexes; department stores. The August 2004 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, 2004.
 The following Department Store Inventory Price Indexes for August 2004 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, 2004.
 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. 2003   Aug. 2004    Percent
                                                                     Change
                                                                   from Aug.
                                                                    2003 to
                                                                   Aug. 2004
                                                                     [FN1]
——————————————————————————-
1.        Piece Goods ………………….. 488.9       513.2          5.0
2.        Domestics and Draperies ……….. 568.7       525.7         -7.6
3.        Women’s and Children’s Shoes …… 631.4       623.7         -1.2
4.        Men’s Shoes ………………….. 838.8       838.6          0.0
5.        Infants’ Wear ………………… 589.1       561.1         -4.8
6.        Women’s Underwear …………….. 510.7       502.4         -1.6
7.        Women’s Hosiery ………………. 347.8       337.5         -3.0
8.        Women’s and Girls’
            Accessories ………………… 551.0       557.2          1.1
9.        Women’s Outerwear and Girls’
            Wear ………………………. 350.2       341.4         -2.5
10.       Men’s Clothing ……………….. 528.7       524.4         -0.8
11.       Men’s Furnishings …………….. 565.6       564.3         -0.2
12.       Boys’ Clothing and
            Furnishings ………………… 423.3       414.5         -2.1
13.       Jewelry ……………………… 880.6       902.5          2.5
14.       Notions ……………………… 787.1       794.8          1.0
15.       Toilet Articles and Drugs ……… 979.8       992.7          1.3
16.       Furniture and Bedding …………. 619.8       607.8         -1.9
17.       Floor Coverings ………………. 588.7       581.5         -1.2
18.       Housewares …………………… 720.4       709.6         -1.5
19.       Major Appliances ……………… 209.7       196.9         -6.1
20.       Radio and Television …………… 45.0        41.2         -8.4
21.       Recreation and Education
            [FN2] ………………………. 82.3        80.1         -2.7
22.       Home Improvements [FN2] ……….. 124.2       129.2          4.0
23.       Automotive Accessories [FN2] …… 111.7       112.8          1.0
Groups 1-15: Soft Goods …………………. 553.5Â Â Â Â Â Â Â 546.4Â Â Â Â Â Â Â Â Â -1.3
Groups 16-20: Durable Goods ……………… 392.1Â Â Â Â Â Â Â 379.2Â Â Â Â Â Â Â Â Â -3.3
Groups 21-23: Misc. Goods [FN2] …………… 93.8Â Â Â Â Â Â Â Â 93.1Â Â Â Â Â Â Â Â Â -0.7
          Store Total [FN3] …………….. 495.2       487.1         -1.6
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. 2004-101, 2004-44 I.R.B. 719
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