Revenue Ruling 2004-100

Rev. Rul. 2004-100
Rev. Rul. 2004-100, 2004-44 I.R.B. 718
                       Internal Revenue Service (I.R.S.)
                                 Revenue Ruling
     LOW-INCOME HOUSING CREDIT; SATISFACTORY BOND; “BOND FACTOR” AMOUNTS FOR
                    THE PERIOD JANUARY THROUGH DECEMBER 2004
                           Published: November 1, 2004

 Section 42.–Low-Income Housing Credit

  Low-income housing credit; satisfactory bond; “bond factor” amounts for the period January through December 2004. This ruling announces the monthly bond factor amounts to be used by taxpayers who dispose of qualified low-income buildings or interests therein during the period January through December 2004.

  Low-income housing credit; satisfactory bond; “bond factor” amounts for the period January through December 2004. This ruling announces the monthly bond factor amounts to be used by taxpayers who dispose of qualified low-income buildings or interests therein during the period January through December 2004.

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

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

  This revenue ruling provides in Table 1 the bond factor amounts for calculating the amount of bond considered satisfactory under s 42(j)(6) or the amount of United States Treasury securities to pledge in a Treasury Direct Account under Rev. Proc. 99-11 for dispositions of qualified low-income buildings or interests therein during the period January through December 2004.

————–
  Table 1 Rev.
————–
————–
  Month of
 Disposition
————–
Jan ‘04
Feb ‘04
Mar ‘04
Apr ‘04
May ‘04
Jun ‘04
Jul ‘04
Aug ‘04
Sep ‘04
Oct ‘04
Nov ‘04
Dec ‘04
————–
————————————————————————–
 Rul. 2004-100 Monthly Bond Factor Amounts for Dispositions Expressed As a
————————————————————————–
——————————
 Percentage of Total Credits
——————————
   Calendar Year Building Placed in Service or, if Section 42(f)(1) Election
                                              Calendar Year
—————————————————————————-
 1990   1991   1992   1993   1994   1995   1996   1997   1998   1999   2000
—————————————————————————-
 14.71  27.31  38.15  47.40  55.27  54.52  54.00  53.57  53.27  53.01  52.84
 14.71  27.31  38.15  47.40  55.27  54.40  53.89  53.45  53.16  52.91  52.74
 14.71  27.31  38.15  47.40  55.27  54.28  53.77  53.34  53.05  52.81  52.65
 15.55  28.88  40.34  50.12  58.45  57.84  57.87  57.99  58.25  58.56  58.98
 15.55  28.88  40.34  50.12  58.45  57.71  57.75  57.87  58.13  58.45  58.87
 15.55  28.88  40.34  50.12  58.45  57.59  57.63  57.75  58.02  58.34  58.77
 14.75  27.38  38.24  47.52  55.41  53.96  53.46  53.05  52.78  52.56  52.43
 14.75  27.38  38.24  47.52  55.41  53.85  53.36  52.95  52.68  52.47  52.35
 14.75  27.38  38.24  47.52  55.41  53.75  53.26  52.86  52.59  52.38  52.27
 15.52  28.81  40.24  50.00  58.30  56.99  57.04  57.18  57.46  57.82  58.28
 15.52  28.81  40.24  50.00  58.30  56.88  56.93  57.08  57.37  57.72  58.19
 15.52  28.81  40.24  50.00  58.30  56.77  56.83  56.97  57.27  57.64  58.11
—————————————————————————-
Was Made, the Succeeding
—————————-
  2001   2002   2003   2004
—————————-
  52.99  53.40  54.02  54.15
  52.90  53.30  53.92  54.15
  52.81  53.22  53.83  54.15
  59.74  60.79  62.04  62.68
  59.64  60.69  61.93  62.68
  59.55  60.59  61.84  62.68
  52.61  53.03  53.64  54.15
  52.54  52.97  53.59  54.15
  52.47  52.91  53.54  54.15
  59.08  60.16  61.46  62.68
  59.01  60.10  61.40  62.68
  58.94  60.04  61.36  62.68
—————————-

  For a list of bond factor amounts applicable to dispositions occurring during other calendar years, see: Rev. Rul. 98-3, 1998-1 C.B. 248; Rev. Rul. 2001-2, 2001-1 C.B. 255; Rev. Rul. 2001-53, 2001-2 C.B. 488; Rev. Rul. 2002-72, 2002-2 C.B. 759; and Rev. Rul. 2003-117, 2003-46 I.R.B. 1051.

DRAFTING INFORMATION

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

 Rev. Rul. 2004-100, 2004-44 I.R.B. 718

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Revenue Ruling 2004-113

Rev. Rul. 2004-113
Rev. Rul. 2004-113, 2004-52 I.R.B. 1024

                       Internal Revenue Service (I.R.S.)
                                 Revenue Ruling

                     LIFO; PRICE INDEXES; DEPARTMENT STORES
                          Published: December 27, 2004

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

   LIFO; price indexes; department stores. The October 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, October 31, 2004.

  The following Department Store Inventory Price Indexes for October 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, October 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                  Oct. 2003     Oct. 2004       Percent
                                                                   Change from
                                                                    Oct. 2003
                                                                     to Oct.
                                                                   2004 [FN1]
——————————————————————————-
1. Piece Goods ……………………….. 487.3         491.6            0.9
2. Domestics and Draperies …………….. 556.5         539.0           -3.1
3. Women’s and Children’s Shoes ………… 657.4         665.8            1.3
4. Men’s Shoes ……………………….. 844.9         832.1           -1.5
5. Infants’ Wear ……………………… 609.1         584.3           -4.1
6. Women’s Underwear ………………….. 520.2         513.0           -1.4
7. Women’s Hosiery ……………………. 352.3         337.6           -4.2
8. Women’s and Girls’ Accessories ………. 578.0         597.3            3.3
9. Women’s Outerwear and Girls’ Wear ……. 387.8         385.5           -0.6
10. Men’s Clothing ……………………. 552.3         542.7           -1.7
11. Men’s Furnishings …………………. 592.1         578.7           -2.3
12. Boys’ Clothing and Furnishings ……… 441.9         430.6           -2.6
13. Jewelry ………………………….. 883.7         892.6            1.0
14. Notions ………………………….. 786.9         793.7            0.9
15. Toilet Articles and Drugs ………….. 984.0         995.6            1.2
16. Furniture and Bedding ……………… 618.8         608.5           -1.7
17. Floor Coverings …………………… 589.4         581.7           -1.3
18. Housewares ……………………….. 714.3         714.6            0.0
19. Major Appliances ………………….. 210.2         202.8           -3.5
20. Radio and Television ……………….. 44.4          41.1           -7.4
21. Recreation and Education [FN2] ………. 82.1          79.8           -2.8
22. Home Improvements [FN2] ……………. 125.3         131.0            4.5
23. Automotive Accessories [FN2] ……….. 111.8         113.1            1.2
Groups 1-15: Soft Goods ……………….. 574.9         569.9           -0.9
Groups 16-20: Durable Goods ……………. 390.0         382.5           -1.9
Groups 21-23: Misc. Goods [FN2] …………. 93.8          93.1           -0.7
     Store Total [FN3] ………………… 507.8         502.4           -1.1
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.

 Rev. Rul. 2004-113, 2004-52 I.R.B. 1024

 

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Revenue Ruling 2005-3

Rev. Rul. 2005-3
Rev. Rul. 2005-3, 2005-3 I.R.B. 334

                        Internal Revenue Service (I.R.S.)
                                 Revenue Ruling

                  SECTION 901(J)(5) PRESIDENTIAL WAIVER; LIBYA

                           Released: December 29, 2004
                           Published: January 18, 2005

 Section 901.–Taxes of Foreign Countries and of Possessions of United States

  Section 901(j)(5) Presidential waiver; Libya. Pursuant to a section 901(j)(5) Presidential waiver, section 901(j)(1) of the Code ceased to apply to Libya effective December 10, 2004. Section 911(d)(8) is not applicable to Libya after September 20, 2004, and Iraq after July 29, 2004. Rev. Ruls. 92-63 and  95-63 modified and superseded. Rev. Rul. 2004-103 superseded.

  Section 901(j)(5) Presidential waiver; Libya. Pursuant to a section 901(j)(5) Presidential waiver, section 901(j)(1) of the Code ceased to apply to Libya effective December 10, 2004. Section 911(d)(8) is not applicable to Libya after September 20, 2004, and Iraq after July 29, 2004. Rev. Ruls. 92- 63 and 95-63 modified and superseded. Rev. Rul. 2004-103 superseded.

  This ruling sets forth guidance regarding the application of section 901(j) of the Internal Revenue Code (Code) with respect to Libya and the application of section 911(d)(8) of the Code with respect to Iraq and Libya. This ruling modifies and supersedes Rev. Rul. 95-63, 1995-2 C.B. 85, which lists countries subject to special tax rules under sections 901(j) and 952(a)(5) of the Code, and also supersedes Rev. Rul. 2004-103, 2004-45 I.R.B. 783, which modified Rev. Rul. 95-63. This ruling also modifies and supersedes Rev. Rul. 92-63, 1992-2 C.B. 195, which lists countries subject to section 911(d)(8) of the Code.

SECTION 901(j)

LAW AND ANALYSIS

  Sections 901, 902, and 960 of the Code generally allow U.S. taxpayers to claim a foreign tax credit for income, war profits, and excess profits taxes paid or accrued (or deemed paid or accrued) to any foreign country or to any possession of the United States. The foreign tax credit is subject to various limitations and restrictions under section 901.

  Section 901(j)(1) imposes restrictions in the case of income and taxes attributable to certain countries. Section 901(j)(1)(A) denies the credit for taxes paid or accrued (or deemed paid or accrued under sections 902 or 960) to any country described in section 901(j)(2)(A) if the taxes are with respect to income attributable to a period during which section 901(j) applies. Section 901(j)(1)(B) requires taxpayers to apply subsections (a), (b), and (c) of section 904 and sections 902 and 960 separately with respect to income attributable to such a period from sources within such country. In addition, section 952(a)(5) provides that subpart F income includes income derived by a controlled foreign corporation from any foreign country during any period during which section 901(j) applies to that foreign country.

  Pursuant to section 901(j)(5), the restrictions of section 901(j)(1) will not apply with respect to a country if the President determines that a waiver of the application of that paragraph is in the national interest of the United States and will expand trade and investment opportunities for U.S. companies in such country. This provision provides for the President, not less than 30 days before the date on which a waiver is granted, to report to Congress the intention to grant such a waiver and the reason for the determination under section 901(j)(5)(A)(i).

  The President issued Presidential Determination 2004-48 on September 20, 2004. In that Presidential Determination, the President determined that a waiver of the application of section 901(j)(1) with respect to Libya is in the national interest of the United States and will expand trade and investment opportunities for U.S. companies in Libya. The Presidential Determination directed the Secretary of the Treasury to report to Congress, in accordance with section 901(j)(5)(B), the President’s intention to grant the

waiver and the reasons for the determination. The Secretary of the Treasury submitted such report to Congress on October 7, 2004.

  On December 10, 2004, the President issued Presidential Determination 2005-12 which waives the application of section 901(j)(1) with respect to Libya. Pursuant to Presidential Determination 2005-12, sections 901(j)(1) and 952(a)(5) no longer apply to Libya, effective December 10, 2004. Therefore, United States taxpayers may be entitled to claim a foreign tax credit for income, war profits, and excess profits taxes paid or accrued (or deemed paid or accrued under sections 902 and 960) to Libya, with respect to income attributable to the period beginning after December 9, 2004.

HOLDING AND EFFECTIVE DATES

  Sections 901(j)(1) and 952(a)(5) apply to the following countries for the following periods:

 ————————————————————————–
Country                                          Starting Date      Ending Date
Afghanistan                                    January 1, 1987    August 4, 1994
Albania                                          January 1, 1987    March 15, 1991
Angola                                          January 1, 1987    June 18, 1993
Cambodia                                      January 1, 1987    August 4, 1994
Cuba                                            January 1, 1987    still in effect
Iran                                             January 1, 1987    still in effect
Iraq                                             February 1, 1991   June 27, 2004
Libya                                           January 1, 1987    December 9, 2004
North Korea                                  January 1, 1987    still in effect
South Africa                                 January 1, 1988    July 10, 1991
Sudan                                         February 12, 1994  still in effect
Syria                                           January 1, 1987    still in effect
Vietnam                                        January 1, 1987    July 21, 1995
People’s Democratic Republic of Yemen  January 1, 1987    May 22, 1990
————————————————————————–

   For guidance on issues arising in a taxable year when section 901(j) ceases to apply to a country, see Rev. Rul. 92-62, 1992-2 C.B. 193.

SECTION 911

LAW AND ANALYSIS

  Section 911(a) of the Code allows a “qualified individual” to elect to exclude from gross income his or her “foreign earned income” (as defined in section 911(b)) and “housing cost amount” (as defined in section 911(c)). Section 911(d)(1) generally defines a “qualified individual” as a citizen or resident of the United States whose tax home is in a foreign country and who meets certain requirements of residence or presence in a foreign country.

  Section 911(d)(8)(A) provides generally that if travel with respect to any foreign country (or any transaction in connection with such travel) is proscribed by certain regulations during any period, then: (1) foreign earned income does not include income from sources within that country attributable to services performed during that period; (2) housing expenses do not include any expenses allocable to such period for housing in that country, or for housing of the taxpayer’s spouse or dependents in another country while the taxpayer is present in that country; and (3) an individual is not treated as a bona fide resident of, or as present in, a foreign country for any day during which the individual was present in that country.

  Section 911(d)(8)(B) provides that the regulations described in section 911(d)(8) are those that have been adopted pursuant to the Trading With the Enemy Act, 50 U.S.C. App. 1 et seq., or the International Emergency Economic Powers Act, 50 U.S.C. 1701 et seq., and that include provisions generally prohibiting citizens and residents of the United States from engaging in transactions related to travel to, from, or within a foreign country. Section 911(d)(8)(C), however, provides that the limitations of section 911(d)(8)(A) do not apply to any individual during any period in which that individual’s activities are not in violation of the regulations described in section 911(d)(8)(B).

  Rev. Rul. 92-63, 1992-2 C.B. 195, identifies three countries subject to regulations described in section 911(d)(8)(B): Cuba (31 CFR 515.560) (1989), Libya (31 CFR 550.207) (1989), and Iraq (31 CFR 575.207) (1991).

  On July 29, 2004, the President issued Executive Order 13350 which effectively lifted the sanctions against Iraq effective July 30, 2004. On September 20, 2004, the President issued Executive Order 13357 which effectively lifted the sanctions against Libya, effective September 21, 2004.

HOLDING AND EFFECTIVE DATES

  Section 911(d)(8) applies to the following countries for the following periods:

 ——————————————–

Country  Starting Date    Ending Date

 Cuba     January 1, 1987  still in effect

Libya    January 1, 1987  September 20, 2004

Iraq     August 2, 1990   July 29, 2004

——————————————–

   With respect to periods prior to (or ending on) the ending dates listed above for Libya and Iraq, individuals whose activities in Libya and Iraq were not in violation of the regulations described in section 911(d)(8)(B) are not subject to the limitations of section 911(d)(8). See, e.g., Notice 2003- 52, 2003-2 C.B. 296, which states that pursuant to section 911(d)(8)(C), the limitations of section 911(d)(8)(A) do not apply to individuals engaged in activities in Iraq that are permitted by a specific or general license issued by the United States Department of Treasury Office of Foreign Assets Control.

EFFECT ON OTHER ADMINISTRATIVE GUIDANCE

  This ruling modifies and supersedes Rev. Rul. 95-63, 1995-2 C.B. 85, and supersedes Rev. Rul. 2004-103, 2004-45 I.R.B. 783, with respect to the list of countries for which section 901(j) is applicable. This ruling modifies and supersedes Rev. Rul. 92-63, 1992-2 C.B. 195, with respect to the list of countries for which section 911(d)(8) is applicable.

DRAFTING INFORMATION

  The principal author of this revenue ruling is Mark R. Pollard of the Office of Associate Chief Counsel (International). For further information regarding this revenue ruling, contact Mr. Pollard at (202) 622-3850 (not a toll-free call).

 Rev. Rul. 2005-3, 2005-3 I.R.B. 334

 

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Revenue Ruling 2005-2

Rev. Rul. 2005-2
Rev. Rul. 2005-2, 2005-2 I.R.B. 259
                       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: December 20, 2004
                           Published: January 10, 2005

 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 January 2005.

Section 280G.–Golden Parachute Payments

  Federal short-term, mid-term, and long-term rates are set forth for the month of January 2005.

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 January 2005.

Section 412.–Minimum Funding Standards

  The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of January 2005.

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 January 2005.

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 January 2005.

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 January 2005.

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 January 2005.

Section 642.–Special Rules for Credits and Deductions

  Federal short-term, mid-term, and long-term rates are set forth for the month of January 2005.

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 January 2005.

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 January 2005.

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 January 2005.

Section 7520.–Valuation Tables

  The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month of January 2005.

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 January 2005.

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 January 2005.

  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 January 2005.

  This revenue ruling provides various prescribed rates for federal income tax purposes for January 2005 (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 deemed rate of return for transfers made during calendar year 2005 to pooled income funds described in s642(c)(5) that have been in existence for less than 3 taxable years immediately preceding the taxable year in which the transfer was made.

——————————————————-
               REV. RUL. 2005-2 TABLE 1
    Applicable Federal Rates (AFR) for January 2005
                Period for Compounding

            Annual     Semiannual  Quarterly  Monthly
Short-term

       AFR  2.78%      2.76%       2.75%      2.74%
  110% AFR  3.06%      3.04%       3.03%      3.02%
  120% AFR  3.34%      3.31%       3.30%      3.29%
  130% AFR  3.62%      3.59%       3.57%      3.56%
  Mid-term
       AFR  3.76%      3.73%       3.71%      3.70%
  110% AFR  4.14%      4.10%       4.08%      4.07%
  120% AFR  4.53%      4.48%       4.46%      4.44%
  130% AFR  4.91%      4.85%       4.82%      4.80%
  150% AFR  5.68%      5.60%       5.56%      5.54%
  175% AFR  6.64%      6.53%       6.48%      6.44%
 Long-term
       AFR  4.76%      4.70%       4.67%      4.65%
  110% AFR  5.24%      5.17%       5.14%      5.12%
  120% AFR  5.72%      5.64%       5.60%      5.57%
  130% AFR  6.20%      6.11%       6.06%      6.03%
——————————————————-

————————————————————-
                  REV. RUL. 2005-2 TABLE 2
                Adjusted AFR for January 2005
                   Period for Compounding
                       Annual  Semiannual  Quarterly  Monthly
Short-term adjusted    2.01%   2.00%       2.00%      1.99%
AFR
Mid-term adjusted AFR  2.97%   2.95%       2.94%      2.93%
Long-term adjusted     4.27%   4.23%       4.21%      4.19%
AFR
————————————————————-

——————————————————————————-
                           REV. RUL. 2005-2 TABLE 3
                   Rates Under Section 382 for January 2005
Adjusted federal long-term rate for the current month                     4.27%
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. 2005-2 TABLE 4
        Appropriate Percentages Under Section 42(b)(2) for January 2005
Appropriate percentage for the 70% present value low-income housing       7.99%
  credit
Appropriate percentage for the 30% present value low-income housing       3.42%
  credit

——————————————————————————-

——————————————————————————-
                           REV. RUL. 2005-2 TABLE 5
                   Rate Under Section 7520 for January 2005
Applicable federal rate for determining the present value of an annuity,  4.60%
  an interest for life or a term of years, or a remainder or
  reversionary interest
——————————————————————————-

——————————————————————————-
                           REV. RUL. 2005-2 TABLE 6

       Deemed Rate for Transfers to New Pooled Income Funds During 2005
Deemed rate of return for transfers during 2005 to pooled income funds     4.0%
  that have been in existence for less than 3 taxable years
——————————————————————————-
 Rev. Rul. 2005-2, 2005-2 I.R.B. 259

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Revenue Ruling 2003-123

Rev. Rul. 2003-123
Rev. Rul. 2003-123, 2003-50 I.R.B. 1200, 2003-2 C.B. 1200
                       Internal Revenue Service (I.R.S.)
                                 Revenue Ruling
                       QUALIFIED CONSERVATION CONTRIBUTION
                          Published: December 15, 2003

 Section 170.–Charitable, etc., Contributions and Gifts

  Is a trust allowed a charitable deduction under section 642(c) of the Internal Revenue Code or a distribution deduction under section 661(a)(2) with respect to a contribution to charity of trust principal that meets the requirements of a qualified conservation contribution under section 170(h)?

Section 641.–Imposition of Tax, 26 CFR 1.641(a)-2: Gross income of estates and trusts.

  Is a trust allowed a charitable deduction under section 642(c) of the Internal Revenue Code or a distribution deduction under section 661(a)(2) with respect to a contribution to charity of trust principal that meets the requirements of a qualified conservation contribution under section 170(h)?

Section 661.–Deduction for Estates and Trusts Accumulating Income or Distributing Corpus

  Is a trust allowed a distribution deduction under section 661(a)(2) with respect to a contribution to charity of trust principal that meets the requirements of a qualified conservation contribution under section 170(h)?

Section 662.–Inclusion of Amounts in Gross Income of Beneficiaries of Estates and Trusts Accumulating Income or Distributing Corpus

  Is a trust allowed a distribution deduction under section 661(a)(2) with respect to a contribution to charity of trust principal that meets the requirements of a qualified conservation contribution under section 170(h)?

Section 663.–Special Rules Applicable to Sections 661 and 662, 26 CFR 1.663(a)-2: Charitable, etc., distributions.

  Is a trust allowed a distribution deduction under section 661(a)(2) with respect to a contribution to charity of trust principal that meets the requirements of a qualified conservation contribution under section 170(h)?

Section 642.–Special Rules for Credits and Deductions, 26 CFR 1.642(c)- 1: Unlimited deduction for amounts paid for a charitable purpose.

  Qualified conservation contribution. This ruling clarifies the Service’s position that a trust is not allowed either a charitable deduction under section 642(c) or a distribution deduction under section 661(a)(2) of the Code with respect to a contribution to charity of trust principal that meets the requirements of a qualified conservation contribution under section 170(h). Rev. Rul. 68-667 amplified.

  Qualified conservation contribution. This ruling clarifies the Service’s position that a trust is not allowed either a charitable deduction under section 642(c) or a distribution deduction under section 661(a)(2) of the Code with respect to a contribution to charity of trust principal that meets the requirements of a qualified conservation contribution under section 170(h). Rev. Rul. 68-667 amplified.

ISSUE

  Is a trust allowed a charitable deduction under s 642(c) of the Internal Revenue Code or a distribution deduction under s 661(a)(2) with respect to a contribution to charity of trust principal that meets the requirements of a qualified conservation contribution under s 170(h)?

FACTS

  Trust is a complex trust subject to the provisions of ss 661-663. Since its inception, Trust has owned two adjacent parcels of real property located in State A. One parcel is 20 acres of undeveloped land, and the other parcel is 50 acres with improvements. The governing instrument of Trust authorizes the trustee to make contributions to charity, including contributions of Trust’s gross income. The trustee conveys a perpetual conservation easement, valued at $10xx, in the 20-acre parcel to State Agency, an organization described in s 170(c)(1). The contribution meets the requirements of a qualified conservation contribution within the meaning of s 170(h). For the year of the contribution, Trust’s gross income is $20x, and no distributions are made to Trust’s beneficiaries.

LAW AND ANALYSIS

  Section 642(c)(1) provides that a trust (other than a trust subject to ss 651 and 652) is allowed a deduction in computing its taxable income for any amount of gross income, without limitation, that pursuant to the terms of the governing instrument is, during the taxable year, paid for a purpose specified in s 170(c) (determined without regard to s 170(c)(2)(A)). This deduction is in lieu of the charitable deduction allowed by s 170(a).

  Section 1.641(a)-2 of the Income Tax Regulations provides that the gross income of an estate or trust is determined in the same manner as that of an individual.

  Section 661(a) provides that a trust (other than a trust subject to ss 651 and 652) is allowed as a deduction in computing its taxable income the sum of (1) any amount of income for the taxable year required to be distributed currently (including any amount required to be distributed that may be paid out of income or corpus to the extent the amount is paid out of income for the taxable year) and (2) any amount properly paid or credited or required to be distributed for a taxable year. The deduction, however, cannot exceed the distributable net income of the trust.

  Section 662(a) provides that the beneficiary of a trust must include in the beneficiary’s gross income the amount described in s 661(a) that is paid, credited, or required to be distributed by the trust to that beneficiary.

  Section 663(a)(2) provides that any amount paid or permanently set aside or otherwise qualifying for the deduction provided in s 642(c) (computed without regard to ss 508(d), 681, and 4948(c)(4)) shall not be included as an amount falling within ss 661(a) and 662(a).

  Section 1.663(a)-2 provides that any amount that is paid, permanently set aside, or to be used for the charitable purposes specified in s 642(c) and that is allowable as a deduction under that section is not allowed as a deduction to an estate or trust under s 661 or treated as an amount distributed for purposes of determining the amounts includible in gross income of beneficiaries under s 662. Amounts paid, permanently set aside, or to be used for charitable purposes are deductible by estates or trusts only as provided in s 642(c). See also Rev. Rul. 68-667, 1968-2 C.B. 289, holding that an amount paid to charity from a trust’s corpus does not qualify either for the charitable deduction under s 642(c) or for the distribution deduction under s 661(a)(2).

  Under s 642(c), a trust is generally allowed an unlimited charitable deduction for amounts that are paid from gross income for charitable purposes pursuant to the terms of the governing instrument. Because s 642(c) specifically requires that a charitable deduction is available only if the source of the contribution is gross income, tracing of the contribution is required in determining its source. Van Buren v. Commissioner, 89 T.C. 1101, 1109 (1987); Riggs National Bank v. United States, 352 F.2d 812 (Ct. Cl. 1965); Mott v. United States, 462 F.2d 512 (Ct. Cl. 1972), cert. denied, 409 U.S. 1108 (1973); see also Crestar Bank v. Internal Revenue Service, 47 F. Supp. 2d 670 (E.D. Va. 1999).

  In the present situation, Trust’s contribution of the conservation easement in the 20-acre parcel is made pursuant to the terms of Trust’s governing instrument. The contribution meets the requirements of a qualified conservation contribution within the meaning of s 170(h) and thus is for a charitable purpose. The charitable contribution, however, is made with respect to Trust principal, not from the gross income of Trust. Because the contribution of the conservation easement is not paid from Trust’s gross income, Trust is not allowed a charitable deduction under s 642(c) for the contribution.

  Furthermore, no deduction is allowed under s 661(a)(2) because amounts paid, permanently set aside, or to be used for charitable purposes are deductible by trusts only as provided in s 642(c). Section 1.663(a)-2. See also U.S. Trust Company v. Internal Revenue Service, 803 F.2d 1363 (5th Cir. 1986); Mott, supra; Rev. Rul. 68-667.

HOLDING

  A trust is not allowed a charitable deduction under s 642(c) and is not allowed a distribution deduction under s 661(a)(2) with respect to a contribution to charity of trust principal that meets the requirements of a qualified conservation contribution under s 170(h).

EFFECT ON OTHER REVENUE RULING

  Rev. Rul. 68-667 is amplified.

DRAFTING INFORMATION

  The principal author of this revenue ruling is DeAnn K. Malone of the Office of the Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact DeAnn K. Malone at (202) 622-7830 (not a toll-free call).

 Rev. Rul. 2003-123, 2003-50 I.R.B. 1200, 2003-2 C.B. 1200

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