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.
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              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%
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                 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%
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                         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.)
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                         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
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                         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
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                         REV. RUL. 2004-106 TABLE 6
Applicable rate of interest for 2005 for purposes of sections 846 and    4.44%
 807
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 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 compens