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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.         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 ………………….. 568.8        559.8         -1.6
Groups 16-20: Durable Goods ………………. 391.4        379.8         -3.0
Groups 21-23: Misc. Goods [FN2] ……………. 93.5         93.0         -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 AFR  1.88%   1.87%       1.87%      1.86%
Mid-term adjusted AFR    2.84%   2.82%       2.81%      2.80%
Long-term adjusted AFR   4.19%   4.15%       4.13%      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 BIRTH    CALENDAR YEAR OF SOCIAL     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
1937                        39,000
1938 - 1939                 45,000
1940                        48,000
1941                        51,000
1942 - 1943                 54,000
1944                        57,000
1945                        60,000
1946-1947                   63,000
1948                        66,000
1949-1950                   69,000
1951-1952                   72,000
1953-1954                   75,000
1955                        78,000
1956-1958                   81,000
1959-1961                   84,000
1962 - 1965                 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)
——————  —————————-  —————————–

       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
———————————  ——————————————–
Before 1987                        $ 90,000
1987                               $ 92,200
1988                               $ 94,800
1989                               $ 98,800
1990                               $103,500
1991                               $108,600
1992                               $114,100
1993                               $117,500
1994                               $121,100
1995                               $124,300
1996                               $127,800
1997                               $131,300
1998                               $134,800
1999                               $137,000
2000                               $139,700
2001                               $144,100
2002                               $148,800
2003                               $151,000
2004                               $154,500
2005                               $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
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      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 …………………. 553.5        546.4          -1.3
Groups 16-20: Durable Goods ……………… 392.1        379.2          -3.3
Groups 21-23: Misc. Goods [FN2] …………… 93.8         93.1          -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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