IRS Rev. Proc. 2018-3: Understanding No-Rule Areas & Relation to 2018-5

This document, known as Revenue Procedure 2018-3, serves as an update to the Internal Revenue Service’s (IRS) guidelines concerning the issuance of letter rulings and determination letters. It revises and supersedes Rev. Proc. 2017-3, providing a current list of specific areas under various sections of the Internal Revenue Code where the IRS will not issue, or will not ordinarily issue, these types of official pronouncements. Crucially, for those working with tax-exempt and governmental entities, this Rev. Proc. 2018-3 should be considered in conjunction with related guidance, particularly Rev. Proc. 2018-5, which focuses on areas under the jurisdiction of the Commissioner, Tax Exempt and Government Entities Division. Understanding the scope and limitations outlined in Rev. Proc. 2018-3 is essential for tax practitioners, businesses, and individuals seeking clarity on complex tax matters before engaging in transactions or filing returns. This procedure is designed to promote sound tax administration by delineating areas where rulings are deemed inappropriate due to their inherently factual nature, resource constraints, or other administrative considerations.

SECTION 1. Purpose and Nature of Changes

This Revenue Procedure’s primary goal is to update the list of areas where the IRS will not provide letter rulings or determination letters. This update is a direct revision of Rev. Proc. 2017-3, ensuring that tax professionals and the public have the most current guidance. It is crucial to note that while Rev. Proc. 2018-3 covers a broad spectrum of tax issues, it is complemented by other procedures, such as Rev. Proc. 2018-5 and Rev. Proc. 2018-7. Rev. Proc. 2018-5, in particular, is specifically relevant as it details areas under the jurisdiction of the Tax Exempt and Government Entities Division, outlining where rulings will and will not be issued concerning exempt organizations, plans, and plan amendments.

The changes incorporated in this 2018 revision are targeted and reflect evolving areas of tax administration. Key modifications include:

1. Addition of Section 115 No-Rule Area: A new section, 3.01(22), has been added concerning § 115, addressing income of states and municipalities. This addition indicates an area of increased scrutiny or complexity regarding the taxability of state and municipal income.

2. Addition of Sections 165 and 1502 No-Rule Area: Section 3.01(31) is introduced, focusing on §§ 165 and 1502. This addition pertains to losses and regulations within the context of consolidated groups, specifically regarding worthless stock losses and intercompany transactions.

3. Modification of Section 332, 351, 355, 368, and 1036 Ruling Position: Old section 3.01(51), now renumbered to 3.01(53), has been significantly modified. The general no-rule stance for transactions under § 368(a)(1)(D) and 355, as well as distributions under § 355 pursuant to section 5.06 of Rev. Proc. 2017–52, has been removed. This indicates a shift towards potentially issuing rulings on certain types of corporate reorganizations and distributions that were previously off-limits.

4. Modification of Section 355 Ruling Position: Old section 3.01(54), renumbered to 3.01(56), is modified in accordance with section 5.07 of Rev. Proc. 2017–52. This change likely refines the IRS’s position on rulings related to distributions of stock and securities of controlled corporations, particularly concerning corporate business purposes and device restrictions.

5. Modification of Section 501, 511, 512, 513, and 514 Ruling Position: Old section 3.01(72), now 3.01(73), has been updated. This section deals with tax-exempt organizations and unrelated business income tax. The modification may reflect changes in the IRS’s approach to ruling on issues involving joint ventures between tax-exempt and for-profit entities.

6. Modification of Section 1033 Ruling Position: Old section 3.01(90), renumbered to 3.01(91), is modified. This section concerns involuntary conversions and likely reflects adjustments in the IRS’s ruling policy regarding the replacement of converted property.

7. Modification of Section 7704 Ruling Position: Old section 3.01(126), now 3.01(127), is updated. This section pertains to publicly traded partnerships and the conditions under which they are treated as corporations. The modification may reflect evolving interpretations or applications of these rules.

8. Modification of Section 141 Ruling Position: Section 4.01(9), concerning § 141 related to private activity bonds, has been modified. This suggests changes in the IRS’s stance on issuing rulings regarding the private business use and private security or payment tests for these types of bonds.

9. Modification of Comfort Rulings Position: Section 4.02(9), addressing Comfort Rulings, has been modified pursuant to section 5.09 of Rev. Proc. 2017–52. This change likely refines the IRS’s policy on issuing rulings on issues that are clearly addressed by existing legal authorities.

10. Modification of Section 302 and 304 Ruling Position: Section 5.01(1), concerning §§ 302 and 304 related to stock redemptions, has been modified. This may indicate a shift in the IRS’s approach to rulings involving the treatment of basis in certain redemption scenarios.

11. Deletion of Sections 355 and 361 Ruling Positions: Old sections 5.01(4) and 5.01(6), concerning §§ 355 and 361, have been deleted, pursuant to Rev. Proc. 2017–38. This deletion suggests that the IRS is no longer studying or temporarily not ruling on certain issues related to these sections, possibly indicating that guidance has been issued or the study has concluded.

12. Deletion of “North-South” Transactions Ruling Position: Old section 5.02, concerning “north-south” transactions, has been deleted, pursuant to Rev. Rul. 2017–09. This deletion likely signifies the resolution of issues surrounding these types of transactions through published rulings.

13. Addition of Section 2010(c)(5)(A) and 301.9100-3 Automatic Approval Procedure: Section 6.08 is added, incorporating the provisions of Rev. Proc. 2017–34, to include automatic approval procedures related to § 2010(c)(5)(A) and § 301.9100–3, concerning estate tax portability elections.

These changes collectively reflect the IRS’s ongoing efforts to refine its ruling policies, address emerging issues, and provide clarity to taxpayers and practitioners. Understanding these specific modifications is crucial for effectively navigating the IRS ruling process in 2018 and beyond, especially when considered alongside related procedures like Rev. Proc. 2018-5.

SECTION 2. Background, Scope of Application, and No-Rule Issues Part of Integrated Transaction

.01 Background.

The IRS, in the interest of sound tax administration, generally aims to provide guidance to individuals and organizations regarding their tax status and the tax implications of their actions before they file their tax returns. This proactive approach helps taxpayers understand their obligations and plan accordingly. In specific cases related to employee plans, as detailed in section 5.15 of Rev. Proc. 2018–1, the Associate Chief Counsel (TEGE) may issue letter rulings even after the relevant tax returns have been filed.

However, there are certain areas where the IRS will not issue rulings or determination letters. These “no-rule” areas are defined due to the inherently factual nature of the issues, resource limitations, or other administrative reasons. This Revenue Procedure outlines these areas in four key sections:

• Section 3: Areas in which rulings or determination letters will not be issued. This section lists absolute no-rule areas.
• Section 4: Areas in which rulings or determination letters will not ordinarily be issued. “Not ordinarily” implies that rulings may be issued only in exceptional circumstances where unique and compelling reasons are demonstrated.
• Section 5: Areas in which the Service is temporarily not issuing rulings or determination letters because these matters are under study. These are issues currently under review by the IRS, and the no-rule status is temporary until the IRS provides further guidance.
• Section 6: Specific areas in which the Service will not ordinarily issue rulings because automatic approval procedures are available. For these matters, the IRS has established streamlined processes for automatic approval, making individual rulings generally unnecessary.

For comprehensive guidance on the circumstances under which the IRS will not issue rulings, refer to Rev. Proc. 2018–1, particularly section 6, titled “Under What Circumstances Does The Service Not Issue Letter Rulings Or Determination Letters?”. This broader procedural guidance complements the specific no-rule areas detailed in Rev. Proc. 2018-3 and related documents like Rev. Proc. 2018-5.

The IRS may periodically publish revenue rulings or revenue procedures in the Internal Revenue Bulletin to provide general guidelines on its position regarding the listed items. These publications serve as broader, publicly available guidance, complementing the more specific no-rule lists.

This revenue procedure will be updated with additions, deletions, and restatements throughout the year. Changes are published as they occur and are consolidated annually into a new revenue procedure, typically published as the third revenue procedure of the year. It’s crucial to understand that these lists are not exhaustive. The IRS retains the discretion to decline issuing a ruling or determination letter in any case where it deems it appropriate for sound tax administration, including due to resource constraints or other case-specific factors. Decisions not to rule on individual cases, especially those lacking significant pattern issues, are not reported in this revenue procedure and will not be included in future revisions.

If the IRS decides not to issue a ruling or determination letter due to resource constraints, it will apply a consistent approach to all taxpayers requesting rulings on the same issue. The IRS will also consider adding such issues to the no-rule list at the earliest opportunity, as outlined in section 6.02 of Rev. Proc. 2018–1.

.02 Scope of Application.

This revenue procedure is specifically directed at the issuance of letter rulings and determination letters by the National Office of the IRS. It does not restrict the submission of requests for technical advice from other IRS offices to the National Office. Technical advice is a separate process where field offices of the IRS can seek guidance from the National Office on complex technical or legal issues arising during an audit or examination.

.03 No-Rule Issues Part of Integrated Transaction.

In situations involving “integrated transactions,” where the tax consequences are interdependent, and one aspect involves a no-rule issue, taxpayers must disclose their understanding of the tax consequences of the no-rule issue in their ruling request. Specifically, the taxpayer must state, to the best of their knowledge and belief, the anticipated tax outcomes of the no-rule issue. While the IRS ruling or determination letter will explicitly state that it did not consider and expresses no opinion on the no-rule issue, the IRS retains the right to decline to rule on the entire integrated transaction if the no-rule issue is deemed too relevant to the overall tax consequences, even with the taxpayer’s representation. See also section 4.02(2) of this revenue procedure for further context on integrated transactions and rulings.

SECTION 3. AREAS IN WHICH RULINGS OR DETERMINATION LETTERS WILL NOT BE ISSUED

.01 Specific Questions and Problems.

This section lists specific areas under the Internal Revenue Code where the IRS will not issue letter rulings or determination letters. These are absolute no-rule areas.

(1) Section 42.—Low-Income Housing Credit. The IRS will not rule on whether a casualty loss has been restored by reconstruction or replacement within a reasonable time under § 42(j)(4)(E). However, determination letters may be issued in these cases. See section 12 of Rev. Proc. 2018–1 for details on determination letters.

(2) Section 45.—Electricity Produced from Certain Renewable Resources, Etc. Rulings will not be issued regarding the allocation of the § 45 credit by a partnership, the validity of a partnership for this credit, or whether a taxpayer is a valid partner.

(3) Section 45.—Electricity Produced from Certain Renewable Resources, Etc. The IRS will not rule on whether a taxpayer meets the requirements of § 45 or Notice 2010–54 for refined coal.

(4) Sections 45 and 48.—Electricity Produced from Certain Renewable Resources, Etc.; Energy Credit. No rulings will be given on the application of the beginning of construction requirement under § 45(d) and § 48(a)(5).

(5) Section 47.—Rehabilitation Credit. Similar to § 45 credits, the IRS will not rule on the allocation of the § 47 rehabilitation credit by a partnership, partnership validity, or partner status.

(6) Section 48.—See section 3.01(4), above. This refers back to the no-rule area for the beginning of construction requirement for the energy credit under § 48.

(7) Section 61.—Gross Income Defined. The IRS will not rule on whether amounts voluntarily deferred under a non-eligible deferred-compensation plan maintained by a § 501 organization are currently includible in gross income. This excludes eligible plans under § 457(b).

(8) Section 61.—Gross Income Defined. No rulings on whether a split-dollar life insurance arrangement is “materially modified” under § 1.61–22(j)(2). This also involves related sections §§ 83, 301, 1401, 2501, 3121, 3231, 3306, 3401, and 7872.

(9) Sections 61, 451, and 1001.—Gross Income Defined; General Rule for Taxable Year of Inclusion; Determination of Amount of and Recognition of Gain or Loss. The IRS will not rule on income realization for investor-owned utility companies concerning intangible property rights related to state-mandated cost recovery legislations. This includes income from the creation, transfer, or securitization of these rights.

(10) Section 79.—Group-Term Life Insurance Purchased for Employees. No rulings on whether a group insurance plan for 10+ employees qualifies as group-term insurance if the insurance amount formula doesn’t meet § 1.79–1(c)(2)(ii) requirements (as if the group were smaller than 10).

(11) Section 83.—Property Transferred in Connection with Performance of Services. The IRS will not rule on whether a restriction is a substantial risk of forfeiture if the employee is a controlling shareholder, or if a transfer occurred when payment involves a nonrecourse obligation.

(12) Section 83.—Property Transferred in Connection with Performance of Services. No rulings on which corporation gets the deduction under § 83(h) after a corporate division, unless facts are similar to Rev. Rul. 2002–1.

(13) Section 101.—Certain Death Benefits. The IRS will not rule on transfer for value in situations involving grantor trusts substantially funded with life insurance on the grantor/spouse, with powers to pay premiums, make loans to the estate, or purchase estate assets, and grantor trust status under §§ 673-677.

(14) Sections 101, 761, and 7701.—Certain Death Benefits; Terms Defined; Definitions. No rulings on partnership status or transfer for value exemption under § 101 for life insurance policy transfers to unincorporated organizations substantially composed of member life insurance policies.

(15) Section 102.—Gifts and Inheritances. The IRS will not rule on whether a transfer is a gift under § 102(a).

(16) Section 105(h).—Amount Paid to Highly Compensated Individuals Under a Discriminatory Self-Insured Medical Expense Reimbursement Plan. No rulings on whether a self-insured medical reimbursement plan meets § 105(h) requirements for a plan year.

(17) Section 107.—Rental Value of Parsonages. The IRS will not rule on whether pension/annuity distributions to retired ministers are excludible as a parsonage allowance under § 107.

(18) Section 107.—Rental Value of Parsonages. No rulings on whether an individual is a “minister of the gospel” for federal tax purposes. This also involves §§ 1402(a)(8), (c)(4), and (e), 3121(b)(8)(A), and 3401(a)(9).

(19) Section 115.—Income of States, Municipalities, Etc. The IRS will not rule on state-created post-secondary education payment plans, including whether the plan is a separate entity, its tax treatment, or whether contracts are debt instruments and their interest/OID treatment. This also involves §§ 61, 163, 1275, 2501, and 7701.

(20) Section 115.—Income of States, Municipalities, Etc. No rulings on whether income of state-established membership organizations reimbursing workmen’s compensation claims is excluded under § 115.

(21) Section 115.—Income of States, Municipalities, Etc. The IRS will not rule on whether some, but not all, income of an entity is from an essential government function to be excluded under § 115.

(22) Section 115.—Income of States, Municipalities, Etc. No rulings on whether income accruing to a trust or entity related to a qualified retirement plan under § 401(a) is excluded under § 115.

(23) Section 117.—Qualified Scholarships. The IRS will not rule on whether payments to research fellows/associates are scholarships or fellowships excluded from FICA wages.

(24) Section 117.—Qualified Scholarships. No rulings on whether employer-related scholarships/fellowships are excludible if there’s no intermediary private foundation as in Rev. Proc. 76–47.

(25) Section 118.—Contributions to the Capital of a Corporation. The IRS will not rule on whether an intertie transfer meets the safe harbor requirements of Notice 2016–36.

(26) Section 119.—Meals or Lodging Furnished for the Convenience of the Employer. No rulings on whether meals/lodging value is excludible for a controlling shareholder-employee.

(27) Section 121.—Exclusion of Gain from Sale of Principal Residence. The IRS will not rule on whether property qualifies as a taxpayer’s principal residence.

(28) Section 125.—Cafeteria Plans. No rulings on whether benefits offered through a cafeteria plan (group-term life insurance, accident/health, dependent care) are includible in gross income and considered “wages” for §§ 3401, 3121, and 3306.

(29) Section 162.—Trade or Business Expenses. The IRS will not rule on whether compensation is reasonable in amount.

(30) Section 163.—Interest. No rulings on income tax consequences of “shared appreciation mortgage” (SAM) loans unless facts are similar to Rev. Rul. 83–51. This also involves §§ 61, 451, 461, 856, 1001, and 7701.

(31) Sections 165 and 1502.—Losses; Regulations. The IRS will not rule on whether the character of gross receipts in intercompany transactions can be redetermined by source funds in worthless stock loss situations under § 165(g)(3)(B) and consolidated groups.

(32) Section 170.—Charitable, Etc., Contributions and Gifts. No rulings on charitable contribution deductions for transfers of interests in limited partnerships/LLCs taxed as partnerships to § 170(c) organizations.

(33) Section 170.—Charitable, Etc., Contributions and Gifts. The IRS will not rule on whether a taxpayer forgiving promissory note amounts to a charity can deduct these amounts as contributions.

(34) Section 170.—Charitable, Etc., Contributions and Gifts. No rulings on whether an organization is or continues to be described in § 170(b)(1)(A) (except clause (v)) or § 170(c)(2)-(5), including status changes due to activities. However, rulings on specific legal questions related to §§ 170(b)(1)(A) or 170(c) may be issued if not otherwise no-rule areas. See Rev. Proc. 2018–5 for determination letters on public charity status.

(35) Section 181.—Treatment of Certain Qualified Film and Television Productions. The IRS will not determine who is the owner of a qualified film or television production under § 1.181–1(a)(1) and (2).

(36) Section 199.—Income Attributable to Domestic Production Activities. No rulings on who has the benefits and burdens of ownership of qualifying production property, qualified film, or utilities during § 199 qualifying activities under § 1.199–3(f)(1).

(37) Section 213.—Medical, Dental, Etc., Expenses. The IRS will not rule on whether capital expenditures for personal items like swimming pools have the primary purpose of medical care and are directly related.

(38) Section 216.—Deduction of Taxes, Interest, and Business Depreciation by Cooperative Housing Corporation Tenant-Stockholder. No rulings on whether a unit constitutes an “apartment in a building” under § 216(b)(1)(B).

(39) Section 264.—Certain Amounts Paid in Connection with Insurance Contracts. The IRS will not rule on whether § 264(d)(1) applies.

(40) Section 264(c)(1).—Contracts Treated as Single Premium Contracts. No rulings on whether “substantially all” premiums are paid within 4 years of purchase or whether a deposit covers a “substantial number” of future premiums.

(41) Sections 267, 304, 331, 332, 351, and 1502.—Losses, Expenses, and Interest with Respect to Transactions Between Related Taxpayers; Redemption Through Use of Related Corporations; Gain or Loss to Shareholders in Corporate Liquidations; Complete Liquidations of Subsidiaries; Transfer to Corporation Controlled by Transferor; Regulations. The IRS will not rule on transactions where stock is transferred with a plan to liquidate the corporation under § 331.

(42) Section 269.—Acquisitions Made to Evade or Avoid Income Tax. No rulings on whether an acquisition is within the meaning of § 269.

(43) Section 274.—Disallowance of Certain Entertainment, Etc., Expenses. The IRS will not rule on using a fixed per-day amount for meal expenses differing from the standard optional rules for substantiation when traveling on business.

(44) Section 302.—Distributions in Redemption of Stock. No rulings on whether § 302(b) applies when redemption consideration is corporate notes payable and stock is escrowed/security for notes, potentially returning to the shareholder upon default.

(45) Section 302.—Distributions in Redemption of Stock. The IRS will not rule on § 302(b) application when redemption consideration is a corporation’s promise to pay based on future earnings, contingent on working capital levels or similar contingencies.

(46) Section 302.—Distributions in Redemption of Stock. No rulings on § 302(b) when a corporation uses property owned by the redeemed shareholder and payments are dependent on future earnings or subordinate to general creditors. Fixed percentage of receipts/sales payments are not considered dependent on future earnings.

(47) Section 302.—Distributions in Redemption of Stock. The IRS will not rule on whether stock acquisition/disposition under § 302(c)(2)(B) has tax avoidance as a principal purpose, unless materially identical to specific Rev. Ruls. (85-19, 79-67, 77-293, 57-387, 56-584, 56-556).

(48) Section 302(b)(4) and (e).—Redemption from Noncorporate Shareholder in Partial Liquidation; Partial Liquidation Defined. No rulings on the amount of working capital attributable to a terminated business portion distributable in partial liquidation.

(49) Section 304.—See section 3.01(41), above. This refers back to the no-rule area involving §§ 267, 304, 331, 332, 351, and 1502.

(50) Section 312.—Effect on Earnings and Profits. The IRS will not determine the amount of a corporation’s earnings and profits.

(51) Sections 331, 453, and 1239.—Gain or Loss to Shareholders in Corporate Liquidations; Installment Method; Gain from Sale of Depreciable Property Between Certain Related Taxpayers. No rulings on tax effects of property transfer from a corporation to a partnership/noncorporate entity (or stock transfer followed by liquidation) when more than nominal stock/interest ownership (>20%) is shared, and consideration includes an installment obligation.

(52) Section 331.—See section 3.01(41), above. This refers back to the no-rule area involving §§ 267, 304, 331, 332, 351, and 1502.

(53) Sections 332, 351, 368, and 1036.—Complete Liquidations of Subsidiaries; Transfer to Corporation Controlled by Transferor; Definitions Relating to Corporate Reorganizations; Stock for Stock of Same Corporation. The IRS will not rule on whether transactions qualify under § 332, 351, or 1036 for nonrecognition or constitute § 368 reorganizations, except for § 368(a)(1)(D)/355 transactions. Instead, rulings will only be issued on significant issues in § 332, 351, 368, or 1036 transactions and their tax consequences. See section 6.03(2) of Rev. Proc. 2018–1.

• SIGNIFICANT ISSUE: A germane and specific legal issue, not a comfort ruling, and not essentially free from doubt. Germane issues are necessary for tax treatment determination. Specific issues are narrowly articulated germane issues. Changed circumstances post-transaction usually aren’t significant issues.
• OBTAINING A LETTER RULING: Taxpayers must comply with section 6.03(2) of Rev. Proc. 2018–1 and Rev. Proc. 2018–1 in general.

(54) Section 332.—See section 3.01(41), above. This refers back to the no-rule area involving §§ 267, 304, 331, 332, 351, and 1502.

(55) Section 351.—See sections 3.01(41) and (53), above. Refers back to no-rule areas involving §§ 267, 304, 331, 332, 351, 1502, and § 332, 351, 368, 1036.

(56) Section 355.—Distribution of Stock and Securities of a Controlled Corporation. The IRS will not rule on corporate business purpose, device, or plan under § 355(e). However, the IRS will rule on: (i) significant legal issues under § 1.355–2(b) regarding corporate business purpose (not inherently factual), (ii) significant legal issues under § 355(a)(1)(B) and § 1.355–2(d) regarding device (not inherently factual), and (iii) may rule on § 355(e) redemptions pending regulations if an adverse ruling would cause a 50% or greater interest acquisition in a plan under § 355(e).

(57) Section 358.—Basis to Distributees. No rulings on the acceptability of estimation or specific sampling procedures to determine stock basis in § 368(a)(1)(B) reorganizations.

(58) Section 368.—See section 3.01(53), above. Refers back to the no-rule area involving §§ 332, 351, 368, and 1036, but with exceptions for significant issues.

(59) Section 403(b).—Taxability of Beneficiary Under Annuity Purchased by Section 501(c)(3) Organization or Public School. The IRS will not rule on whether a plan form satisfies § 403(b) requirements as per Rev. Proc. 2018–4.

(60) Section 409A.—Inclusion in Gross Income of Deferred Compensation Under Nonqualified Deferred Compensation Plans. No rulings on income tax consequences of establishing, operating, or participating in nonqualified deferred compensation plans under § 1.409A–1(a); whether plans are described in § 1.409A–1(a)(3)(iv) or (v); whether plans are bona fide vacation/sick/comp time plans under § 1.409A–1(a)(5); and whether plans defer compensation under § 1.409A–1(b).

(61) Section 411(d)(3).—Termination or Partial Termination; Discontinuance of Contributions. The IRS will not rule on whether there has been a partial termination of an employee plan. However, determination letters may be issued on partial terminations. See Rev. Proc. 2018–4.

(62) Section 414(d).—Governmental Plan. No rulings on whether a plan is a governmental plan under § 414(d).

(63) Section 419(e).—Welfare Benefit Fund. The IRS will not rule on whether a captive insurance arrangement for employee health insurance is a welfare benefit fund.

(64) Section 424.—Definitions and Special Rules. No rulings on whether substituting/assuming Incentive Stock Options (ISOs) in corporate transactions is a modification failing the spread or ratio tests of § 424(a)(1) or § 1.425–1(a)(4). The IRS will rule on whether new ISOs or assumed old ISOs give additional benefits under § 424(a)(2).

(65) Section 451.—General Rule for Taxable Year of Inclusion. No rulings on tax consequences of nonqualified unfunded deferred-compensation arrangements for controlling shareholder-employees.

(66) Section 451.—General Rule for Taxable Year of Inclusion. The IRS will not rule on tax consequences of nonqualified unfunded deferred-compensation arrangements not meeting Rev. Proc. 92–65 and Rev. Proc. 71–19 requirements.

(67) Sections 451 and 457.—General Rule for Taxable Year of Inclusion; Nonqualified Deferred Compensation Plans of State and Local Governments and Tax-Exempt Organizations. No rulings on tax consequences to unidentified independent contractors in nonqualified unfunded deferred compensation plans under § 451 (private sector) and § 457 (government/exempt). Rulings may be issued for specific independent contractor participation.

(68) Section 451.—See section 3.01(9), above. Refers back to the no-rule area involving §§ 61, 451, 1001 related to utility cost recovery.

(69) Section 453.—See section 3.01(51), above. Refers back to the no-rule area involving §§ 331, 453, 1239 related to corporate liquidations and installment obligations.

(70) Section 457.—See section 3.01(67), above. Refers back to the no-rule area involving §§ 451 and 457 concerning independent contractors and deferred compensation.

(71) Section 457A.—Nonqualified Deferred Compensation from Certain Tax Indifferent Parties. No rulings on income tax consequences of establishing, operating, or participating in nonqualified deferred compensation plans under § 457A(d)(3).

(72) Section 501.—Exemption from Tax on Corporations, Certain Trusts, Etc. The IRS will not rule on whether organizations are/continue to be exempt under § 501(a) as described in §§ 501(c) or 501(d), including status changes due to activities. However, rulings on specific legal questions related to §§ 501(c) or 501(d) may be issued if not otherwise no-rule areas. See Rev. Proc. 2018–5 for determination letters on tax-exempt status.

(73) Sections 501, 511, 512, 513, and 514.—Exemption from Tax on Corporations, Certain Trusts, Etc.; Imposition of Tax on Unrelated Business Income of Charitable, Etc., Organizations; Unrelated Business Taxable Income; Unrelated Trade or Business; Unrelated Debt-Financed Income. No rulings on whether joint ventures between tax-exempt and for-profit organizations affect exempt status, further exempt purpose, or result in unrelated business income.

(74) Sections 507, 664, 4941, and 4945.—Termination of Private Foundation Status; Charitable Remainder Trusts; Taxes on Self-Dealing; Taxes on Taxable Expenditures. No rulings on tax consequences of terminating charitable remainder trusts (§ 664) early, where beneficiaries get actuarial shares of trust assets.

(75) Section 509.—Private Foundation Defined. The IRS will not rule on whether an organization is or continues to be described in § 509(a)(1)-(4), including status changes due to activities. However, rulings on specific legal questions related to § 509(a) may be issued if not otherwise no-rule areas. See Rev. Proc. 2018–5 for determination letters on public charity status.

(76) Sections 511, 512, 513, and 514.—Imposition of Tax on Unrelated Business Income of Charitable, Etc., Organizations; Unrelated Business Taxable Income; Unrelated Trade or Business; Unrelated Debt-Financed Income. No rulings on unrelated business income tax issues when charitable lead trust assets are invested with charitable organizations.

(77) Sections 511, 512, 513, and 514.—See section 3.01(73), above. Refers back to the no-rule area involving §§ 501, 511, 512, 513, 514 related to joint ventures of tax-exempt organizations.

(78) Section 529.—Qualified Tuition Programs. No rulings on whether state-run tuition programs qualify under § 529.

(79) Sections 542, 543, and 544.—Definition of Personal Holding Company; Personal Holding Company Income; Rules for Determining Stock Ownership. No rulings on whether § 544(a) application causes a corporation to meet stock ownership requirements under § 542(a)(2), § 543(a)(4), § 543(a)(6), or § 543(a)(7).

(80) Section 641.—Imposition of Tax. The IRS will not rule on whether estate/trust administration/settlement periods (non-§ 664 trusts) are reasonable or unduly prolonged.

(81) Section 642(c).—Deduction for Amounts Paid or Permanently Set Aside for a Charitable Purpose. No rulings on unlimited charitable set-aside deductions for trusts/estates when corpus invasion is possible.

(82) Section 664.—Charitable Remainder Trusts. The IRS will not rule on whether charitable remainder trust settlements upon noncharitable interest termination are made within a reasonable time.

(83) Section 664.—See section 3.01(74), above. Refers back to the no-rule area involving §§ 507, 664, 4941, 4945 related to early termination of charitable remainder trusts.

(84) Section 671.—Trust Income, Deductions, and Credits Attributable to Grantors and Others as Substantial Owners. No rulings on grantor trust status when trusts are substantially funded with insurance on grantor/spouse, with powers to pay premiums, loan to estate, or buy estate assets, and grantor trust powers under §§ 673-677.

(85) Section 704(b).—Determination of Distributive Share. The IRS will not rule on whether partnership agreement allocations of income, gain, loss, deduction, or credit have substantial economic effect or are per partner’s interest in the partnership.

(86) Section 761.—Terms Defined. No rulings on partnership validity or whether someone is a partner in a partnership.

(87) Section 761.—See section 3.01(14), above. Refers back to the no-rule area involving §§ 101, 761, 7701 related to life insurance policy transfers to unincorporated organizations.

(88) Section 856.—Definition of Real Estate Investment Trust. No rulings on whether “paired” or “stapled” stock corporations qualify as REITs under § 856 if activities are integrated.

(89) Section 1001.—Determination of Amount of and Recognition of Gain or Loss. No rulings on whether early termination of charitable remainder trusts, with beneficiaries receiving actuarial shares, is a sale or disposition by beneficiaries.

(90) Section 1001.—See section 3.01(9), above. Refers back to the no-rule area involving §§ 61, 451, 1001 related to utility cost recovery.

(91) Section 1033.—Involuntary Conversions. The IRS will not rule on whether replacements of involuntarily converted property qualify under § 1033(a) if the taxpayer already filed a tax return for the year gain was realized. Determination letters may be issued. See section 12.01 of Rev. Proc. 2018–1.

(92) Section 1036.—See section 3.01(53), above. Refers back to the no-rule area involving §§ 332, 351, 368, 1036, but with exceptions for significant issues.

(93) Section 1221.—Capital Asset Defined. No rulings on whether specialty stock allocated to an investment account by a registered specialist is a capital asset.

(94) Section 1221.—Capital Asset Defined. No rulings on whether early termination of charitable remainder trusts, with beneficiaries receiving actuarial shares, is a sale/exchange of a capital asset by beneficiaries.

(95) Section 1239.—See section 3.01(51), above. Refers back to the no-rule area involving §§ 331, 453, 1239 related to corporate liquidations and installment obligations.

(96) Section 1361.—S Corporation Defined. No rulings on whether state law limited partnerships electing corporate classification have more than one class of stock for § 1361(b)(1)(D). Rulings on S corp eligibility are treated as requests on § 1361(b)(1)(D) compliance.

(97) Section 1502.—Regulations. No rulings on whether a consolidated group member failing to file Form 1122 or join in a consolidated return due to mistake/inadvertence will be treated as if they filed. Determination letters may be issued. See section 12.01 of Rev. Proc. 2018–1. But see also section 6.07 for automatic waivers.

(98) Section 1502.—See sections 3.01(31) and (41), above. Refers back to no-rule areas involving §§ 165, 1502 and §§ 267, 304, 331, 332, 351, 1502.

(99) Section 1551.—Disallowance of the Benefits of the Graduated Corporate Rates and Accumulated Earnings Credit. No rulings on whether a transfer is within § 1551.

(100) Section 2031.—Definition of Gross Estate. No actuarial factors for valuing interests in a living person’s prospective gross estate.

(101) Section 2055.—Transfers for Public, Charitable, and Religious Uses. No rulings on charitable contribution deductions under § 2055 for limited partnership/LLC interest transfers to § 2055(a) organizations.

(102) Section 2512.—Valuation of Gifts. No actuarial factors for valuing prospective or hypothetical donor gifts.

(103) Section 2522.—Charitable and Similar Gifts. No rulings on charitable contribution deductions under § 2522 for limited partnership/LLC interest transfers to § 2522(a) organizations.

(104) Section 2601.—Tax Imposed. No rulings on whether GST-exempt trusts under § 26.2601–1(b)(1), (2), or (3) retain exempt status upon modification, administration change, or distribution in scenarios similar to § 26.2601–1(b)(4)(i)(E) examples.

(105) Sections 3121, 3306, and 3401.—Definitions. No rulings for prospective employment status (employee vs. independent contractor). Rulings on prior employment status may be issued.

(106) Sections 3121, 3306, and 3401.—Definitions. No rulings on who is the employer of an “employee-owner” under § 269A(b)(2).

(107) Sections 3121, 3306, and 3401.—Definitions. No rulings on whether a worker is a bona fide partner (and thus not an employee) for Form SS-8 determinations.

(108) Section 4052(f)(1).—Certain Repairs and Modifications Not Treated as Manufacture. No rulings on whether a chassis repaired/modified with a “glider kit” is treated as manufactured if repair/modification costs are ≤75% of comparable new chassis retail price.

(109) Section 4191.—Medical Devices. No rulings on whether human-intended devices (defined in the Federal Food, Drug, and Cosmetic Act) are “taxable medical devices” under § 4191(b)(1) due to the § 4191(b)(2) exemption for eyeglasses, contacts, hearing aids, and similar retail-purchased devices.

(110) Section 4216(b).—Constructive Sale Price. No rulings on whether a particular methodology for determining the tax base is allowable under constructive sale price rules.

(111) Sections 4375, 4376, and 4377.—Health Insurance; Self-Insured Health Plans; Definitions and Special Rules. No rulings on whether arrangements are specified health insurance policies or applicable self-insured health plans subject to fees.

(112) Sections 4940 and 4942.—Excise Tax Based on Investment Income; Taxes on Failure to Distribute Income. No rulings on whether organizations are/continue to be “operating foundations” (§ 4942(j)(3)) or “exempt operating foundations” (§ 4940(d)(2)), including status changes due to activities. However, rulings on specific legal questions related to §§ 4940(d)(2) or 4942(j)(3) may be issued if not otherwise no-rule areas. See Rev. Proc. 2018–5 for determination letters on foundation status.

(113) Section 4941.—Taxes on Self-Dealing. No rulings on whether estate/trust administration transactions meet the § 4941 exception in § 53.4941(d)–1(b)(3) when disqualified persons issue promissory notes for estate/trust property.

(114) Section 4941.—See section 3.01(74), above. Refers back to the no-rule area involving §§ 507, 664, 4941, 4945 related to early termination of charitable remainder trusts.

(115) Section 4942.—See section 3.01(112), above. Refers back to the no-rule area involving §§ 4940, 4942 related to foundation status.

(116) Section 4945.—See section 3.01(74), above. Refers back to the no-rule area involving §§ 507, 664, 4941, 4945 related to early termination of charitable remainder trusts.

(117) Section 4958.—Taxes on Excess Benefit Transactions. No rulings on whether compensation/property transactions satisfy the rebuttable presumption of not being excess benefit transactions under § 53.4958–6.

(118) Section 4975(d).—Exemptions. No rulings on whether renewing/extending/refinancing exempt loans satisfies § 4975(d)(3), or whether prepaying ESOP loans satisfies § 4975(d)(3) (except for plan termination).

(119) Section 4980B.—Failure to Satisfy Continuation Coverage Requirements of Group Health Plans. No rulings on whether actions are “gross misconduct” under § 4980B(f)(3)(B). See section 3.05 of Rev. Proc. 87–28.

(120) Section 4980H.—Shared Responsibility for Employers Regarding Health Coverage. No rulings on whether employers must make assessable payments under § 4980(H)(a) or (b).

(121) Section 6166.—Extension of Time for Payment of Estate Tax Where Estate Consists Largely of Interest in Closely Held Business. No § 6166 requests if there’s no decedent.

(122) Section 6901.—Transferred Assets. No rulings on whether a taxpayer is liable for tax as a transferee.

(123) Section 7216.—Disclosure or Use of Information by Preparers of Returns. No rulings on whether criminal penalties apply for disclosure/use of information by return preparers.

(124) Section 7701.—Definitions. No rulings on the classification of instruments with voting/liquidation rights but dividend rights tied to segregated asset portions of the issuer (including subsidiary assets).

(125) Section 7701.—Definitions. No rulings on federal tax classification of fideicomisos or land trusts under local law, applying Rev. Rul. 2013–14 or Rev. Rul. 92–105 principles.

(126) Section 7701.—See section 3.01(14), above. Refers back to the no-rule area involving §§ 101, 761, 7701 related to life insurance policy transfers to unincorporated organizations.

(127) Section 7704.—Certain Publicly Traded Partnerships Treated as Corporations. No rulings on whether partnership interests not traded on established securities markets (§ 7704(b), § 1.7704–1(b)) are readily tradable on secondary markets or their substantial equivalent (§ 1.7704–1(c)(1)). Includes investment funds/portfolios supporting variable contract arrangements of life insurance companies.

(128) Section 9815.—Additional Market Reforms. No rulings on whether insured group health plans meet § 2716 of the Public Health Service Act (non-discrimination in favor of highly compensated individuals) as incorporated by § 9815.

.02 General Areas.

(1) Economic Substance Doctrine & § 7701(o). No rulings on whether the economic substance doctrine applies or whether transactions comply with § 7701(o).

(2) Transactions Lacking Bona Fide Business Purpose/Tax Reduction Purpose. No rulings on results of transactions lacking bona fide business purpose or primarily aimed at federal tax reduction.

(3) Adverse Court Decision Pending Resolution. No rulings on matters with adverse court decisions where the government hasn’t decided to follow or further litigate.

(4) Alternate/Hypothetical Plans. No rulings on alternate proposed transaction plans or hypothetical situations.

(5) Factual Determinations (Reasonable Cause, Due Diligence, etc.). No rulings on matters requiring factual determinations like reasonable cause, due diligence, good faith, clear and convincing evidence.

(6) Practice Regulations (31 CFR Part 10/Circular 230). No rulings on matters involving regulations governing practice before the IRS (31 CFR Part 10/Circular 230).

(7) Criminal Penalties. No rulings on whether proposed transactions would subject taxpayers to criminal penalties.

(8) Rescission of Completed Transactions. No rulings on whether completed transactions can be rescinded for federal income tax purposes.

(9) Stock Option Contributions to/Exercises from Qualified Plans. No rulings on income or excise tax consequences of contributing stock options to or exercising them from plans in Part 1 of Subchapter D of Chapter 1 of Subtitle A of the Code.

(10) Sound Tax Administration Discretion. No rulings on questions the IRS deems should not be answered in the interest of sound tax administration, including resource constraints.

(11) Frivolous Issues. No rulings on frivolous issues as defined in section 6.10 of Rev. Proc. 2018–1.

(12) Non-Compliant Requests. No rulings on requests not complying with Rev. Proc. 2018–1.

SECTION 4. AREAS IN WHICH RULINGS OR DETERMINATION LETTERS WILL NOT ORDINARILY BE ISSUED

.01 Specific Questions and Problems.

This section outlines areas where the IRS will not ordinarily issue rulings or determination letters. Rulings in these areas may be issued only if unique and compelling reasons are demonstrated.

(1) Sections 38, 39, 46, and 48.—General Business Credit; Carryback and Carryforward of Unused Credits; Amount of Credit; Energy Credit. Rulings are not ordinarily issued on the application of these sections if formal property ownership is with a party other than the taxpayer, unless title is held merely as security.

(2) Section 61.—Gross Income Defined. Rulings are not ordinarily issued on determining the true owner of securities or participation interests if the purchaser has a contractual right to force purchase by the seller or a third party.

(3) Sections 61 and 163.—Gross Income Defined; Interest. Rulings are not ordinarily issued on determining the true owner of property or borrower of money when formal ownership or liability is with another party.

(4) Section 62(c).—Certain Arrangements Not Treated as Reimbursement Arrangements. Rulings are not ordinarily issued on whether salary reduction amounts paid under purported reimbursement arrangements are “accountable plans” under § 1.62–2(c)(2).

(5) Sections 83 and 451.—Property Transferred in Connection with Performance of Services; General Rule for Taxable Year of Inclusion. Rulings are not ordinarily issued on when compensation is realized from nonstatutory stock options without readily ascertainable fair market value, granted in connection with services, at a price below fair market value on the grant date.

(6) Sections 101 and 7702.—Certain Death Benefits; Life Insurance Contract Defined. Rulings are not ordinarily issued on whether arrangements with non-insurance-regulated entities are treated as “life insurance contracts” under §§ 101(a) and 7702.

(7) Section 103.—Interest on State and Local Bonds. Rulings are not ordinarily issued on whether state/local bond interest is excludible under § 103(a) if bond proceeds (non-advance refunding) are escrowed or unspent for extended periods, even with compliant yields.

(8) Section 103.—Interest on State and Local Bonds. Rulings are not ordinarily issued on whether state/local obligations not meeting Rev. Proc. 89–5 criteria are “arbitrage bonds” solely due to investing bond proceeds in higher-yield nonpurpose obligations >3 years (or 5 years for construction issues) after issuance.

(9) Section 141.—Private Activity Bond; Qualified Bond. Rulings are not ordinarily issued on whether state/local bonds meet “private business use test” and “private security or payment test” under § 141(b)(1) and (2) for output facilities when a nongovernmental person purchases 30%+ of actual output but ≤10% of available output as per § 1.141–7(b)(1). Similar no-rule stance for § 141(b)(3), (4), and (5).

(10) Sections 142 and 144(a).—Exempt Facility Bond; Qualified Small Issue Bond. Rulings are not ordinarily issued on whether private activity bond issues meet § 142 or § 144(a) if the sum of user-financed facility portions and issuance/nonqualified costs exceeds 5% of net proceeds (§ 150(a)(3)).

(11) Section 148.—Arbitrage. Rulings are not ordinarily issued on whether proceeds from selling municipal bond financed property, pledged to debt service or as collateral, are sinking fund proceeds (former § 1.103–13(g)) or replaced proceeds (§ 148(a)(2) or former § 103(c)(2)(B)).

(12) Sections 162 and 262.—Trade or Business Expenses; Personal, Living, and Family Expenses. Rulings are not ordinarily issued on whether expenses are nondeductible commuting expenses, except as governed by Rev. Rul. 99–7.

(13) Section 162(m).—Certain Excessive Employee Remuneration. Rulings are not ordinarily issued on whether the § 162(m) deduction limit applies to compensation for services to a related partnership.

(14) Section 163.—See section 4.01(3), above. Refers back to the no-rule area involving §§ 61 and 163 regarding true property/borrower ownership.

(15) Section 165.—Losses. Rulings are not ordinarily issued on whether corporate stock has been abandoned.

(16) Section 167.—Depreciation.

• (i) Useful lives of assets.
• (ii) Depreciation rates.
• (iii) Salvage value of assets.
  Rulings are not ordinarily issued on these depreciation aspects.

(17) Sections 167 and 168.—Depreciation; Accelerated Cost Recovery System. Rulings are not ordinarily issued on applying these sections if formal property ownership is with a party other than the taxpayer, unless title is security.

(18) Section 170.—Charitable, Etc., Contributions and Gifts. Rulings are not ordinarily issued on whether transfers to pooled income funds (§ 642(c)(5)) qualify for charitable deductions under § 170(f)(2)(A).

(19) Section 170.—Charitable, Etc., Contributions and Gifts. Rulings are not ordinarily issued on whether transfers to charitable remainder trusts (§ 664) with annuity/unitrust payments for 1-2 lives qualify for charitable deductions under § 170(f)(2)(A).

(20) Section 170.—Charitable, Etc., Contributions and Gifts. Rulings are not ordinarily issued on whether taxpayers transferring property to charity and leasing it back can deduct the fair market value as a charitable contribution.

(21) Section 216.—Deduction of Taxes, Interest, and Business Depreciation by Cooperative Housing Corporation Tenant-Stockholder. Rulings are not ordinarily issued on whether income from commercial activity by a transferee corporation (not a CHC) and related distributions to a CHC are considered CHC gross income for the 80% tenant-stockholder gross income test under § 216(b)(1)(D).

(22) Section 262.—See section 4.01(12), above. Refers back to the no-rule area involving §§ 162 and 262 regarding commuting expenses.

(23) Section 265(a)(2).—Interest. Rulings are not ordinarily issued on whether debt is incurred or continued to purchase or carry wholly tax-exempt obligations.

(24) Section 302.—Distributions in Redemption of Stock. Rulings are not ordinarily issued on the tax effect of stock redemptions for notes payable over >15 years from issuance.

(25) Section 302(b)(4) and (e).—Redemption from Noncorporate Shareholder in Partial Liquidation; Partial Liquidation Defined. Rulings are not ordinarily issued on whether distributions qualify as partial liquidations under § 302(b)(4) and (e)(1)(A) unless they result in ≥20% reduction in gross revenue, net asset FMV, and employees. (This excludes § 302(e)(2) business terminations.)

(26) Section 306.—Dispositions of Certain Stock. Rulings are not ordinarily issued on whether distributing, disposing, or redeeming “section 306 stock” in closely held corporations is part of a tax avoidance plan under § 306(b)(4).

(27) Sections 331 and 346(a).—Gain or Loss to Shareholders in Corporate Liquidations; Complete Liquidation. Rulings are not ordinarily issued on the tax effect of liquidating corporations through series of distributions over >3 years from plan adoption.

(28) Section 351.—Transfer to Corporation Controlled by Transferor. Rulings are not ordinarily issued on whether § 351 applies to real property interest transfers by CHCs (§ 216(b)(1)) to corporations engaging in commercial activity, in exchange for transferee stock/securities.

(29) Section 355.—Distribution of Stock and Securities of a Controlled Corporation. Rulings are not ordinarily issued on whether the § 355(b) active business requirement is met when a distributing corporation acquires control of a controlled corporation within the 5-year period (§ 355(b)(2)(B)) by transferring cash or inactive assets in a § 351(a) or § 368(a)(1)(D) nonrecognition transaction.

(30) Section 355.—Distribution of Stock and Securities of a Controlled Corporation. Rulings are not ordinarily issued on any issue concerning qualification under § 355 and related provisions if, immediately post-distribution, the active trade or business assets of the distributing or controlled corporation are <5% of their total gross assets. Affiliated groups are treated as one corporation. Partnership businesses are proportionally attributed. Exceptions apply for wholly within-affiliated-group distributions not part of broader external distribution plans.

(31) Section 355.—Distribution of Stock and Securities of a Controlled Corporation. Rulings are not ordinarily issued on any non-plan issue under § 355(e) (i.e., issues other than plan determination). Exception for adverse ruling on non-plan issue leading to ≥50% interest acquisition in a plan under § 355(e).

(32) Section 441(i).—Taxable Year of Personal Service Corporations. Rulings are not ordinarily issued on whether the principal activity of a taxpayer during the testing period is performing personal services under § 1.441–3(c)(1)(iii).

(33) Section 448(d)(2)(A).—Limitation on Use of Cash Method of Accounting; Qualified Personal Service Corporation. Rulings are not ordinarily issued on whether ≥95% of employee time is devoted to performing services under § 1.448–1T(e)(4)(i) for QPSCs.

(34) Section 451.—General Rule for Taxable Year of Inclusion. Rulings are not ordinarily issued on tax consequences of grantor trust nonqualified deferred compensation arrangements failing Rev. Proc. 92–64 requirements.

(35) Section 451.—General Rule for Taxable Year of Inclusion. Rulings are not ordinarily issued on income tax consequences for beneficiaries of Indian tribe trusts established to receive/invest per capita payments under the Indian Gaming Regulatory Act.

(36) Section 451.—See section 4.01(5), above. Refers back to the no-rule area involving §§ 83 and 451 regarding nonstatutory stock options.

(37) Section 584.—Common Trust Funds. Rulings are not ordinarily issued on whether common trust fund plans meet § 584 requirements. (See Rev. Proc. 92–51 for § 584 plan drafting guidance.)

(38) Section 642.—Special Rules for Credits and Deductions. Rulings are not ordinarily issued on whether pooled income funds satisfy § 642(c)(5) requirements.

(39) Section 664.—Charitable Remainder Trusts. Rulings are not ordinarily issued on whether charitable remainder trusts with annuity/unitrust payments for 1-2 lives or terms of years satisfy § 664 requirements.

(40) Section 664.—Charitable Remainder Trusts. Rulings are not ordinarily issued on whether trusts calculating unitrust amounts under § 664(d)(3) qualify as § 664 CRTs when grantors, trustees, beneficiaries, or related/subordinate persons can control trust income receipt timing from partnerships/deferred annuities to benefit unitrust recipients.

(41) Sections 671 to 679.—Grantors and Others Treated as Substantial Owners. Rulings are not ordinarily issued on tax consequences of using trusts other than the model trust in Rev. Proc. 92–64 for nonqualified, unfunded deferred compensation arrangements.

(42) Sections 671 to 679.—Grantors and Others Treated as Substantial Owners. Rulings are not ordinarily issued on whether Indian tribes establishing trusts for per capita payments under the Indian Gaming Regulatory Act are grantors and owners of those trusts.

(43) Section 678.—Person Other than Grantor Treated as Substantial Owner. Rulings are not ordinarily issued on whether a person is treated as trust owner due to withdrawal powers (or prior powers with retained other powers causing grantor trust status) if the trust purchases property from that person with a note and grantor funding is nominal compared to purchased property value.

(44) Section 851.—Definition of Regulated Investment Company. Rulings are not ordinarily issued on issues requiring determination of whether financial instruments/positions are securities as defined in the Investment Company Act of 1940 for RIC status under § 851.

(45) Section 856.—Definition of Real Estate Investment Trust. Rulings are not ordinarily issued on whether outdoor advertising displays are real property for § 856, unless the REIT made a § 1.1033(g)–1(b) election; then rulings may be issued on related, non-election-scope assets as real property for § 856.

(46) Section 1031(f).—Special Rules for Exchanges Between Related Persons. Rulings are not ordinarily issued on whether § 1031(f) exchanges between related parties or subsequent dispositions have tax avoidance as a principal purpose, or are structured to avoid § 1031(f) purposes, except for (i) undivided interest exchanges leading to single property or larger undivided interest ownership, or (ii) dispositions in nonrecognition transactions.

(47) Section 1362.—Election; Revocation; Termination. Rulings are not ordinarily issued in situations covered by automatic approval or administrative procedures for late S corp, QSub, QSST, or ESBT elections. See Rev. Proc. 2013–30.

(48) Section 1502.—Regulations. Rulings are not ordinarily issued on whether parent CHCs (§ 216(b)(1)) can file consolidated returns with transferee subsidiaries engaging in commercial activity with transferred real property interests.

(49) Sections 2035, 2036, 2037, 2038, and 2042.—Adjustments for Certain Gifts Made Within Three Years of Decedent’s Death; Transfers with Retained Life Estate; Transfers Taking Effect at Death; Revocable Transfers; Proceeds of Life Insurance. Rulings are not ordinarily issued on trust asset includibility in beneficiary gross estates under these sections if beneficiaries sell property (including insurance) to trusts or die within 3 years of sale, and (i) beneficiaries have withdrawal powers (or prior powers with retained grantor trust powers), (ii) trusts purchase property with notes, (iii) grantor funding is nominal compared to purchased property value.

(50) Section 2055.—Transfers for Public, Charitable, and Religious Uses. Rulings are not ordinarily issued on whether transfers to pooled income funds (§ 642(c)(5)) qualify for charitable deductions under § 2055(e)(2)(A).

(51) Section 2055.—Transfers for Public, Charitable, and Religious Uses. Rulings are not ordinarily issued on whether transfers to charitable remainder trusts (§ 664) with annuity/unitrust payments for 1-2 lives or terms of years qualify for charitable deductions under § 2055(e)(2)(A).

(52) Section 2501.—Imposition of Tax. Rulings are not ordinarily issued on whether property (including insurance) sales to trusts by trust beneficiaries are gifts under § 2501 if (i) beneficiaries have withdrawal powers (or prior powers with retained grantor trust powers), (ii) trusts purchase property with notes, (iii) grantor funding is nominal compared to purchased property value.

(53) Section 2503.—Taxable Gifts. Rulings are not ordinarily issued on whether property transfers to trusts are present interest gifts when (i) trusts are substantially funded by insurance on grantor/spouse, (ii) trustees/others can pay premiums, (iii) trustees/others can loan to estate/buy estate assets, (iv) beneficiaries have demand withdrawal powers, (v) grantor trust powers under §§ 673-677 exist.

(54) Section 2514.—Powers of Appointment. Rulings are not ordinarily issued on whether § 2514(e) applies to beneficiaries letting withdrawal powers lapse when (i) trusts are substantially funded by insurance on grantor/spouse, (ii) trustees/others can pay premiums, (iii) trustees/others can loan to estate/buy estate assets, (iv) beneficiaries have demand withdrawal powers, (v) grantor trust powers under §§ 673-677 exist.

(55) Section 2522.—Charitable and Similar Gifts. Rulings are not ordinarily issued on whether transfers to pooled income funds (§ 642(c)(5)) qualify for charitable deductions under § 2522(c)(2)(A).

(56) Section 2522.—Charitable and Similar Gifts. Rulings are not ordinarily issued on whether transfers to charitable remainder trusts (§ 664) with annuity/unitrust payments for 1-2 lives or terms of years qualify for charitable deductions under § 2522(c)(2)(A).

(57) Section 2601.—Tax Imposed. Rulings are not ordinarily issued on whether pre-9/25/85 irrevocable trusts losing GST-exempt status if situs changes from the US to outside the US.

(58) Section 2702.—Special Valuation Rules in Case of Transfers of Interests in Trusts. Rulings are not ordinarily issued on whether annuity interests are qualified annuity interests under § 2702 if annual annuity payments exceed 50% of initial net FMV or remainder interest value is <10% of initial net FMV. The 10% test is based on present value under § 7520, excluding grantor death probability or retained reversion value.

(59) Section 2702.—Special Valuation Rules in Case of Transfers of Interests in Trusts. Rulings are not ordinarily issued on whether single-term holder trusts meet § 2702(a)(3)(A) and § 25.2702–5(c) requirements for qualified personal residence trusts.

(60) Section 2702.—Special Valuation Rules in Case of Transfers of Interests in Trusts. Rulings are not ordinarily issued on whether property (including insurance) sales to trusts by trust beneficiaries are subject to § 2702 if (i) beneficiaries have withdrawal powers (or prior powers with retained grantor trust powers), (ii) trusts purchase property with notes, (iii) grantor funding is nominal compared to purchased property value.

(61) Section 3121.—Definitions. Rulings are not ordinarily issued on determining which of two entities is the employer under common law rules when one entity treats the worker as an employee.

(62) Section 7702.—See section 4.01(6), above. Refers back to the no-rule area involving §§ 101 and 7702 regarding non-insurance-regulated entities and life insurance contracts.

.02 General Areas.

(1) Primarily Factual Determinations. Rulings are not ordinarily issued on matters primarily factual, like property market value or stock vs. indebtedness classification, unless (i) taxpayer strongly believes classification is stock, (ii) compelling reasons justify a ruling. Taxpayer should discuss with the relevant Associate Chief Counsel office before requesting.

(2) Parts of Integrated Transactions. Rulings are generally not issued on parts of integrated transactions, unless a part falls under a no-rule area (then rulings on other parts may be issued). Taxpayer should discuss with the relevant Associate Chief Counsel office before requesting. Exception: For § 332, 351, 355, 1036 transactions and § 368 reorganizations, rulings on parts of integrated transactions may be issued if presenting a significant issue (§ 3.01(53)).

(3) Interrelated Accounting Items/Sub-Methods. Rulings are not ordinarily issued on accounting method changes involving only one of interrelated items or sub-methods.

(4) Transactions at Indefinite Future Times. Rulings are not ordinarily issued on tax effects of transactions to be consummated at indefinite future times.

(5) Property Held Primarily for Sale. Rulings are not ordinarily issued on whether property is held primarily for sale to customers in the ordinary course of business.

(6) Transactions Involved in Litigation. Rulings are not ordinarily issued on tax effects of transactions if any part is in litigation among affected parties, except for bankruptcy reorganizations.

(7) Foreign Domicile in Non-Information-Exchange Jurisdictions.

• (a) No rulings if taxpayer or related party is domiciled/organized in a foreign jurisdiction without effective tax information exchange with the US, precluding IRS access to relevant information.
• (b) Subsection (a) does not apply if taxpayer/related party (i) consents to disclose all relevant information, (ii) waives bank/commercial secrecy in the foreign jurisdiction. IRS may retroactively rescind rulings if consent/waiver is ineffective.

(8) Proposed Legislation. Rulings are not ordinarily issued on federal tax consequences of proposed federal, state, local, municipal, or foreign legislation. General information may be provided. Exception: Associate Chief Counsel (TEGE) may rule on proposed state/local/municipal legislation effects on § 457(b) eligible deferred compensation plans if requests comply with Rev. Proc. 2018–1.

(9) Comfort Rulings. Except for Covered Transactions in Rev. Proc. 2017–52, rulings will not be issued on issues clearly and adequately addressed by existing authority (Comfort Rulings). Exception: Associate offices may issue Comfort Rulings if ruling on another issue in the same transaction, except for issues under §§ 332, 351, 368, 1036 and their tax consequences.

(10) Legal Action/Settlement Allocations. Rulings are not ordinarily issued on allocating payments from legal actions/settlements (periodic or lump sum) to capital recovery, compensatory damages, punitive damages, dividends, interest, back pay, etc.

(11) Hook Equity. Rulings are not ordinarily issued on treatment/effects of hook equity (issuance, ownership, redemption), unless (i) hook equity is transitory (e.g., triangular reorganizations), or (ii) hook equity treatment is irrelevant to overall transaction/issue. “Hook equity” is ownership in one entity held by another entity where the former owns ≥50% of the latter, except for wholly-owned subsidiaries.

(12) Tax-Qualified Plan Qualification. Rulings are not ordinarily issued on whether tax-qualified plans meet qualification requirements under §§ 401-420 and § 4975(e)(7). Handled through Employee Plans Determinations program (Rev. Proc. 2018–4, Rev. Proc. 2016–37, Rev. Proc. 2015–36). Exception: Associate Chief Counsel (TEGE) may rule if (i) unique qualification issue needing immediate guidance, (ii) unlikely to be addressed via determination letter, (iii) IRS deems it in good tax administration interest.

(13) PBGC/DOL Considered Issues. Rulings on issues being considered by the Pension Benefit Guaranty Corporation (PBGC) or Department of Labor (DOL) involving the same taxpayer are discretionary for the Office of Associate Chief Counsel (TEGE).

SECTION 5. AREAS UNDER STUDY IN WHICH RULINGS OR DETERMINATION LETTERS WILL NOT BE ISSUED UNTIL THE SERVICE RESOLVES THE ISSUE THROUGH PUBLICATION OF A REVENUE RULING, A REVENUE PROCEDURE, REGULATIONS, OR OTHERWISE

.01 Specific Questions and Problems.

This section lists specific areas currently under study by the IRS where rulings or determination letters will not be issued until the IRS resolves the issue through published guidance.

(1) Sections 302 and 304.—Distributions in Redemption of Stock; Redemptions Through Use of Related Corporations. Study area: Treatment of basis in § 302/304 redemptions.

(2) Sections 351, 358, and 362.—Transfer to Corporation Controlled by Transferor; Basis to Distributees; Basis to Corporations. Study area: Issues in Rev. Rul. 2006–2.

(3) Section 355.—Distribution of Stock and Securities of a Controlled Corporation. Study area: Qualification under § 355 and related provisions when, post-distribution, (i) investment assets are ≥2/3 of gross assets, (ii) active business assets are <10% of investment assets, (iii) investment asset ratio to non-investment assets is ≥3x higher for one corporation vs. the other. Investment asset definition per § 355(g)(2)(B) with modifications, including publicly traded stock/partnership treatments and partnership attribution rules. No rulings also on issues related to plan/series of transactions involving investment asset disposal or active business property acquisition to avoid this section. Exceptions for wholly within-affiliated-group distributions without broader external distribution plans.

(4) Section 358.—See section 5.01(2), above. Refers back to the study area involving §§ 351, 358, 362 and Rev. Rul. 2006-2.

(5) Section 362.—See section 5.01(2), above. Refers back to the study area involving §§ 351, 358, 362 and Rev. Rul. 2006-2.

(6) Section 613A.—Limitations on Percentage Depletion in Case of Oil and Gas Wells. Study area: Whether oil/gas or product sales are bulk sales for § 613A(d)(2).

(7) Sections 661 and 662.—Deduction for Estates and Trusts Accumulating Income or Distributing Corpus; Inclusion of Amounts in Gross Income of Beneficiaries of Estates and Trusts Accumulating Income or Distributing Corpus. Study area: Whether “decanting” (trust-to-trust distribution changing beneficial interests) is a § 661 deduction or § 662 income inclusion event.

(8) Section 1014.—Basis of Property Acquired from a Decedent. Study area: Whether grantor trust assets get § 1014 basis adjustment at the deemed owner’s death for income tax if assets are not in the gross estate under chapter 11.

(9) Section 2036.—Transfers with Retained Life Estate. Study area: Whether trust corpus is included in grantor’s estate when the trustee is a private trust company owned partially or entirely by grantor’s family.

(10) Section 2038.—Revocable Transfers. Study area: Whether trust corpus is included in grantor’s estate when the trustee is a private trust company owned partially or entirely by grantor’s family.

(11) Section 2041.—Powers of Appointment. Study area: Whether trust corpus is included in an individual’s estate when the trustee is a private trust company owned partially or entirely by members of the individual’s family.

(12) Section 2501.—Imposition of Tax. Study area: Whether “decanting” (trust-to-trust distribution changing beneficial interests) is a gift under § 2501.

(13) Sections 2601 and 2663.—Tax Imposed; Regulations. Study area: Whether “decanting” (trust-to-trust distribution changing beneficial interests) of GST-exempt trusts causes loss of GST-exempt status or is a taxable termination/distribution under § 2612.

(14) Sections 4966 and 4967.—Taxes on Taxable Distributions; Taxes on Prohibited Benefits. Study area: Interpretation of §§ 4966 and 4967 regarding donor advised fund distributions.

(15) Section 6050P.—Returns Relating to the Cancellation of Indebtedness by Certain Entities. Study area: Whether debt instrument amount reductions are reportable under § 6050P.

(16) Section 6050P.—Returns Relating to the Cancellation of Indebtedness by Certain Entities. Study area: Whether nonlending transaction discharges are reportable under § 6050P.

(17) Section 6109.—Identifying Numbers. Study area: Proper assignment/retention of EIN in § 368(a)(1)(F) reorganizations when transferor becomes disregarded under § 301.7701–3.

.02 General Areas.

None at this time.

SECTION 6. AREAS COVERED BY AUTOMATIC APPROVAL PROCEDURES IN WHICH RULINGS WILL NOT ORDINARILY BE ISSUED

This section lists areas where the IRS has established automatic approval procedures, making individual rulings generally unnecessary and not ordinarily issued.

.01 Section 338.—Certain Stock Purchases Treated as Asset Acquisitions. No rulings on § 301.9100–3 extensions for § 338(g) or (h)(10) elections where automatic procedures exist. See Rev. Proc. 2003–33 (automatic extension for certain late Form 8023 filers).

.02 Section 442.—Change of Annual Accounting Period. No rulings on annual accounting period changes where automatic change procedures exist. See Rev. Proc. 2002–39 (general procedures), clarified/modified by Notice 2002–72 and Rev. Proc. 2003–34; Rev. Proc. 2006–45 (certain corporations), clarified/modified by Rev. Proc. 2007–64; Rev. Proc. 2006–46 (partnership, S corp, PSC, trust); Rev. Proc. 2003–62 (individuals to calendar year).

.03 Section 446.—General Rule for Methods of Accounting. Except as otherwise provided, no rulings on accounting method changes where automatic change request procedures exist. See automatic change request procedures in section 9.22 of Rev. Proc. 2018–1.

.04 Section 461.—General Rule for Taxable Year of Deduction. No rulings on § 461 election making/revoking where administrative procedures exist. See Rev. Proc. 92–29 (alternative method for common improvements in real estate developments).

.05 Section 704(c).—Contributed Property. No rulings on requests from Qualified Master Feeder Structures (Rev. Proc. 2001–36, section 4.02) for permission to aggregate built-in gains/losses for § 704(c)/reverse § 704(c) allocations.

.06 Section 1362.—Election; Revocation; Termination. No rulings in situations qualifying for automatic late S corp relief under Rev. Proc. 2013–30.

.07 Sections 1502, 1504, and 1552.—Regulations; Definitions; Earnings and Profits. No rulings on consolidated return waivers/consents where administrative procedures exist. See Rev. Proc. 2014–24 (late Form 1122 filers); Rev. Proc. 2002–32 (reconsolidation within 5 years), modified by Rev. Proc. 2006–21; Rev. Proc. 90–39 (E&P allocation method elections/changes), modified by Rev. Proc. 2006–21, clarified by Rev. Proc. 90–39A; Rev. Proc. 89–56 (52-53 week year consolidated returns), modified by Rev. Proc. 2006–21.

.08 Section 2010(c)(5)(A).—Election Required. No rulings on § 301.9100–3 extensions for § 2010(c)(5)(A) elections (portability) filed before the second anniversary of death, where administrative procedures exist. See Rev. Proc. 2017–34 (automatic extension for portability elections).

.09 Section 7701.—Definitions. No rulings on § 301.9100–3 extensions for § 301.7701–3 entity classification elections where automatic procedures exist. See Rev. Proc. 2009–41 (automatic extension for certain late Form 8832 filers).

SECTION 7. EFFECT ON OTHER REVENUE PROCEDURES

Rev. Proc. 2017–3 and Rev. Proc. 2017–38 are superseded. Rev. Proc. 2017–34, Rev. Proc. 2017–52, and Rev. Rul. 2017–09 are superseded in part.

SECTION 8. EFFECTIVE DATE

This revenue procedure is effective January 2, 2018.

SECTION 9. PAPERWORK REDUCTION ACT

The information collections in this revenue procedure have OMB control number 1545–1522. See sections 2.03 and 3.01(53) for information collections. This information is needed to assess if a ruling request is covered by this revenue procedure and to obtain a letter ruling or determination letter. Respondents are primarily businesses or for-profit institutions. Estimated burden per response varies (1-200 hours), average 80 hours. Estimated respondents: 3,956. Estimated response frequency: on occasion. Records must be retained as long as relevant to internal revenue law administration. Tax return information is confidential under 26 U.S.C. § 6103.

DRAFTING INFORMATION

Jean Broderick of the Office of Associate Chief Counsel (Corporate) is the principal author. For inquiries, contact Ms. Broderick at (202) 317-6848 (not toll-free) or the Associate office contacts in section 10.07 of Rev. Proc. 2018–1. See section 3 of Rev. Proc. 2018–1 for Associate office jurisdiction.