26 CFR 54.4981A-1T d. Excess Accumulations

d-1: Q. To what extent does section 4981A increase the estate tax imposed by chapter 11 with respect to the estates of any decedents?

A. Section 4981A(d) provides that the estate tax imposed by chapter 11 with respect to the estate of any decedent is increased by an amount equal to 15 percent of the decedent's excess accumulation. See Q&A d-2 through d-7 of this section for rules for determining the decedent's excess accumulation. See Q&A d-8 of this section concerning credits under section 2010 through 2016. See Q&A d-9 of this section for examples illustrating the determination of the increase in estate tax under section 4981A(d).

d-2: Q. How is the amount of an decedent's excess accumulation determined?

A. (a) General rule. A decedent's excess accumulation is the excess of (1) the aggregate value of the decedent's interests in all qualified employer plans and individual retirement plans (decedent's aggregate interest) as of the date of the decedent's death over (2) an amount equal to the present value of a hypothetical life annuity determined under Q&A d-7 of this section. If the personal representative for the individual's estate elects to value the property in the gross estate under section 2032, the applicable valuation date prescribed by section 2032 shall be substituted for the decedent's date of death.

(b) Other rules. See Q&A d-3 and d-4 of this section if the decedent or, where appropriate, the decedent's personal representative validly elects the special grandfather rule and has any unused grandfather benefit as of the date of his death. See Q&A d-5 and d-6 of this section to determine the decedent's aggregate interest.

d-3: Q. Does the special grandfather rule apply for purposes of determining the amount of the decedent's excess accumulation?

A. Yes. If a decedent prior to death (or the decedent's personal representative after death) makes an election that satisfied the procedures in Q&A b-3 of this section, the special grandfather rule applies.

d-4: Q. How is the decedent's excess accumulation determined if the special grandfather rule applies?

A. If the special grandfather rule applies, the decedent's excess accumulation is the excess of (a) the decedent's aggregate interest (determined under Q&A d-5 of this section) over (b) the greater of (1) the decedent's remaining unrecovered grandfather amount as of the date of the decedent's death, or (2) an amount equal to the present value of a hypothetical life annuity under Q&A d-7 of this section.

d-5. Q. How is the value of the decedent's aggregate interest as of the applicable valuation date under Q&A d-2 determined?

A. (a) Method of valuation. The value of the decedent's aggregate interest on the decedent's date of death is determined in a manner consistent with the valuation of such interests for purposes of determining the individual's gross estate for purposes of chapter 11. If the personal representative for an individual's estate subject to estate tax elects to value the property in the gross estate under section 2032, the decedent's aggregate interest is valued in a manner consistent with the rules prescribed by section 2032 (and other relevant estate tax sections). No adjustments provided in chapter 11 in valuing the gross estate are made. Thus, there is no adjustment under section 2057 (relating to the sale of certain employer securities).

(b) Amounts included. Generally, all amounts payable to beneficiaries of the decedent under any qualified employer plan (including amounts payable to a surviving spouse under a qualified joint and survivor annuity or qualified preretirement survivor annuity) or individual retirement plan, whether or not otherwise included in valuing the decedent's gross estate, are considered to be part of the decedent's interest in such plan.

(c) Rollover after death. If any amount is distributed from a qualified employer plan or individual retirement plan within the 60-day period ending on the decedent's date of death and is rolled over to an IRA after such date but within 60 days of the date distributed, the decedent's aggregate interest is increased by the amount rolled over, valued as of the date received by the IRA.

d-6. Q. Are there any reductions in the decedent's aggregate interest?

A. The decedent's aggregate interest is reduced by the following:

(a) Amount payable to alternate payee. The amount of any portion of the deceased individual's interest in a qualified employer plan that is payable to an alternate payee in whose income the amount is includible under a qualified domestic relations order within the meaning of section 414(p) (QDRO). However, such portion must be taken into account in determining the excess distribution or the excess accumulation upon the death of such alternate payee for purposes of determining if there is a tax under section 4981A(a) or an increase in the estate tax under section 4981A(d) with respect to such alternate payee.

(b) Investment in the contract. The amount of the deceased individual's unrecovered investment, within the meaning of section 72(f), in any qualified employer plan or individual retirement plan.

(c) Life insurance proceeds. The excess of any amount payable by reason of the death of the individual under a life insurance contract held under a qualified employer plan over the cash surrender value of such contract immediately before the death of such individual (the amount excludible from income by reason of section 101(a)). Amounts excludible from gross income because of section 101(b) do not reduce the decedent's aggregate interest.

(d) Interest as a beneficiary. The amount of the deceased individual's interest in a qualified retirement plan or individual retirement plan by reason of the death of another individual.

d-7. Q. How is the present value of the hypothetical life annuity determined?

A. (a) General rule. The hypothetical life annuity is a single life annuity contract that provides for equal annual annuity payments commencing on the decedent's date of death for the life of an individual whose age is the same as the decedent's determined as of the date of the decedent's death. The amount of each annual payment is equal to the greater of $150,000 (unindexed) and $112,500 (as indexed until the date of death). If the decedent elected (or the decedent's personal representative elects) the special grandfather rule, the amount of each annual payment is $112,500 (as indexed until the date of death) even if there is no remaining grandfather amount.

(b) Determination of age. The decedent's age as of the decedent's date of death for purposes of valuing the hypothetical life annuity is the decedent's attained age (in whole years) as of the decedent's date of death. For example, if the decedent was born on February 2, 1930, and died on August 3, 1990, the decedent's age for purposes of valuing the hypothetical life annuity is 60.

(c) Interest rate assumptions. The present value of the single life annuity described above must then be calculated using the interest rate and mortality assumptions in 20.2031-7 of the Estate Tax Regulations in effect on the date of death.

d-8: Q. Are any credits, deductions, exclusions, etc. that apply for estate tax purposes allowable as an offset against the excise tax under section 4981A(d) for excess accumulations?

A. No. No credits, deductions, exclusions, etc. that apply for estate tax purposes are allowed to offset the tax imposed under section 4981A(d). Thus, no credits under section 2010 through 2016 or other reductions permitted by Chapter 11 are allowable against the tax under section 4981A(d) for excess accumulations. For example, no credits are allowable for the unified credit against the estate tax, for state death taxes, or for gift taxes.

d-8A. Q. Is the estate liable for the excise tax of 15 percent on the amount of the decedent's excess accumulations?

A. Yes. In all events, the estate is liable for the excise tax of 15 percent on the amount of the decedent's excess accumulations. Transferee liability rules under chapter 11 do apply, however. Similarly, the reimbursement provisions of section 2205 also apply. Additionally, the rules generally applicable for purposes of determining the apportionment of the estate tax apply to the apportionment of the excise tax under section 4981A(d). Thus, the decedent's will or the applicable state apportionment law may provide that the executor is entitled to recover the tax imposed under section 4981A(d) attributable to any property from the beneficiary entitled to receive such property. However, absent such a provision in the decedent's will or in the applicable state apportionment law, the executor is not entitled to recover the tax imposed under section 4981A(d) attributable to any property from the beneficiary entitled to receive such property.

d-9: Q. How is the additional tax computed with respect to a decedent's estate under section 4981A(d)?

A. The determination of the additional tax under section 4981A(d) is illustrated by the following examples:

Example 1. (a) An individual (A) dies on February 1, 199X at age 70 and 9 months. As of A's date of death, A has an interest in a defined benefit plan described in section 401(a) (Plan X). Plan X has never provided for employee contributions. A has no section 72 (f) investment in Plan X. A does not have any interest in any other qualified employer plan or individual retirement plan. The alternate valuation date in section 2032 does not apply. A did not elect to have the special grandfather rule apply. A's interest in Plan X is in the form of a qualified joint and survivor annuity. The value of the remaining payments under the joint and survivor annuity as of A's date of death (determined under D-5) is $2,000,000.

(b) Because A is age 70 and 9 months of A's date of death, A's life expectancy as of A's date of death is calculated using age 70 (A's attained age in whole years on A's date of death). The factor from Table A of 20.2031-7(f) used to determine the present value of a single life annuity for an individual age 70 is 6.0522. The greater of $150,000 or $112,500 indexed for 199X is 150,000. The present value of the hypothetical single life annuity is $907,830 ($150,000 X 6.0522)

(c) The amount of A's excess accumulation is $1,092,170, determined as follows: $2,000,000 (value of A's interest in Plan X) minus $907,830 (value of hypothetical signle life annuity contract) equals $1,092,170.

(d) The increase in the estate tax under section 4981A(d) is $163,825 (15 percent of $1,092,170).

Example 2. (a) The facts are the same as in Example 1, except that A's interest in Plan X consists of the following:

(1) $2,000,000, value of employer-provided portion of a qualified joint and survivor annuity determined as of A's date of death using the interest and mortality assumptions in 20.2031-7.

(2) $200,000, proceeds of a term life insurance contract (no cash surrender value before death).

(3) $100,000. amount (employer-provided portion) payable to A's former spouse pursuant to a QDRO.

(4) $100,000, amount of A's investment in Plan X.

(b) The value of A's interest in Plan X for purposes of calculating A's excess accumulation is still $2,000,000. The proceeds of the term life insurance contract, the amount payable under the QDRO, and the amount of A's investment in Plan X are excluded from such value.

Example 3. (a) The facts are the same as in Example 1, except that A elected the special grandfather rule. A's initial grandfather amount was $1,100,000. As of A's date of death, A had received $500,000 in distributions that were treated as a return of A's grandfather amount. Thus, A's unused grandfather amount is $600,000 ($1,100,000-$500,000). In 199X, assume that $112,500 indexed is still $112,500.

(b) A's excess retirement accumulation is determined as follows: $2,000,000 minus the greater of (1) $600,000 or (2) the present value of a period certain annuity of $112,500 a year for 16 years. The present value of a single life annuity of $112,500 a year for an individual age 70 is determined as follows: $112,500 6.0522=$680,827.25. $680,827.25 is greater than $600,000. Thus the amount of the excess retirement accumulation is $1,319,173 ($2,000,000 minus $680,827).

(c) The additional estate tax under section 4981A(d) is $197,875 (15 percent of $1,319,173).

Example 4. (a) The facts are the same as in Example 3 except that, as of A's date of death, A received $90,000 in distributions that were treated as a return of A's grandfather amount. Thus, A's unused grandfather amount is $1,010,000 ($1,100,000-$90,000).

(b) A's excess retirement accumulation is determined as follows: $2,000,000 minus the greater of (1) ($1,010,000 (A's unused grandfather amount) or (2) 680,827.25 (the present value of a single life annuity of $112,500 a year for an individual age 70). A's unused grandfather amount is greater than the present value of the hypothetical life annuity. Thus, the amount of the excess retirement accumulation is $990,000 ($2,000,000-$1,010,000).

(c) The additional estate tax under section 4981A(d) is $148,500 (15 percent of $990,000).

d-10: Q. if a surviving spouse rolls over a distribution from a qualified retirement plan or an individual retirement plan of the decedent to an individual retirement plan (IRA) established in the spouse's own name, is any distribution in a calendar year from the IRA receiving such rollover included in determining the spouse's excess distribution or excess accumulation in such calendar year?

A. (a) General rule. If a surviving spouse rolls over a distribution from a qualified retirement plan or an individual retirement plan of the decedent to an individual retirement plan (IRA) established in the spouse's own name with the rollover contribution and no other contributions or transfers are made to the IRA receiving the rollover contribution, distributions from such IRA will be excluded in determining the spouse's excess distributions and the value of the IRA will be excluded in determining the spouse's excess accumulation. If the surviving spouse rolls over a distribution from a qualified retirement plan or IRA of the decedent to an IRA for which the spouse has prior contributions or makes additional contributions to the IRA receiving the distribution, distributions from the IRA will be included in determining the amount of the excess distributions received by the spouse for the calendar year of the distribution and the value of the IRA at the applicable valuation date will be included in determining the spouse's excess accumulation.

(b) Special rules. The rule in paragraph (a) of this Q&A d-10 also applies if a surviving spouse elects to treat an inherited IRA (described in section 408(d)(3)(C)(ii)) as the spouse's own IRA as long as the surviving spouse makes no further contributions to such IRA.

(c) Other beneficiaries. Rules similar to the rules in paragraphs (a) and (b) shall apply to an individual who elected to treat an IRA as subject to the distribution requirements of section 408(a)(6), prior to amendment by section 521(b) of TRA '84, under 1.408-2(b)(7)(ii) of the Income Tax Regulations.

d-11. Q. To what estates does the excise tax under section 4981A(d) apply?

A. The excise tax under section 4981A(d) applies to estates of decedents dying after December 31, 1986.

d-12: Q. Is the aggregate interest reduced by distributions described in paragraph (b)(1) of Q&A c-6 of this section (distributions prior to January 1, 1988, made on account of certain terminations of a qualified employer plan) which are made after the individual's death.

A. Yes, the value of the individual's aggregate interest determined under Q&A d-5 of this section is reduced by distributions described in paragraph (b)(1) of Q&A c-6 of this section which are made after the individual's death.

(T.D. 8165, 52 FR 46750, Dec. 10, 1987; 53 FR 18975, May 26, 1988)

26 CFR 54.6011-1 General requirement of return, statement, or list.

(a) Minimum funding standards or excess contributions for self-employed individuals and section 403(b)(7)(A) custodial accounts. Any employer or individual liable for tax under section 4971, 4972 or 4973(a)(2) (for a custodial account under section 403(b)(7)(A)) shall file an annual return on Form 5330 and shall include therein the information required by such form and the instructions issued with respect thereto.

(b) Tax on prohibited transactions. Every disqualified person (as defined in section 4975(e)(2)) liable for the tax imposed under section 4975(a) with respect to a prohibited transaction shall file an annual return on Form 5330 and shall include therein the information required by such form and the instructions issued with respect thereto. The annual return on Form 5330 shall be filed with respect to each prohibited transaction and for each taxable year (or part thereof) of the disqualified person in the taxable period (as defined in section 4975(f)(2)) beginning on the date on which such prohibited transaction occurs.

(T.D. 7838, 47 FR 44249, Oct. 7, 1982)

26 CFR 54.6011-1T General requirement of return, statement, or list (temporary).

Every employer liable for the tax imposed under section 4980(a) with respect to an employer reversion (as defined in section 4980(c)(2)) shall file a quarterly return on Form 5330 and shall include therein the information required by such form and the instructions issued with respect thereto. The quarterly return on Form 5330 shall be filed with respect to employer reversions from each qualified plan (as defined in section 4980(c)(1)).

(T.D. 8133, 52 FR 10563, Apr. 2, 1987)

26 CFR 54.6071-1T Time for filing returns (temporary).

(a) In general. Each quarterly return required by 54.6011-1T shall be filed not later than the last day of the second month following the calendar quarter in which the reversion occurs.

(b) Extension of time for filing with respect to certain reversions. All returns required by 54.6011-1T for reversions occurring on or before March 31, 1987 shall be filed not later than May 31, 1987.

(T.D. 8133, 52 FR 10563, Apr. 2, 1987)

26 CFR 54.6071-1T PART 55 -- EXCISE TAX ON REAL ESTATE INVESTMENT TRUSTS AND REGULATED INVESTMENT COMPANIES

26 CFR 54.6071-1T Subpart A -- Excise Tax On Real Estate Investment Trusts

Sec.

55.4981-1 Imposition of excise tax on certain real estate investment trust taxable income not distributed during the taxable year; taxable years ending on or before January 1, 1987.

55.4981-2 Imposition of excise tax with respect to certain undistributed income of real estate investment trusts; calendar years beginning after December 31, 1986.

26 CFR 54.6071-1T Subpart B -- Excise Tax on Regulated Investment Companies

55.4982-1 Imposition of excise tax on undistributed income of regulated investment companies.

26 CFR 54.6071-1T Subpart C -- Procedure and Administration

55.6001-1 Notice or regulations requiring records, statements, and special returns.

55.6011-1 General requirement of return, statement, or list.

55.6061-1 Signing of returns and other documents.

55.6065-1 Verification of returns.

55.6071-1 Time for filing returns.

55.6081-1 Extension of time for filing the return.

55.6091-1 Place for filing Chapter 44 tax returns.

55.6091-2 Exceptional cases.

55.6151-1 Time and place for paying of tax shown on returns.

55.6161-1 Extension of time for paying tax or deficiency.

55.6165-1 Bonds where time to pay tax or deficiency has been extended.''

Authority: Secs. 6001, 6011, 6071, 6091, and 7805 of the Internal Revenue Code of 1954 (68A Stat. 731, 732, 749, 752, 917; 26 U.S.C. 6001, 6011, 6071, 6091, and 7805). Section 55.4981-1 also issued under sec. 860(e), 92 Stat. 2849 (26 U.S.C. 860(e); sec. 860(g), 92 Stat. 2850 (26 U.S.C. 860(g)); and sec 7805. 68A Stat. 917 (26 U.S.C. 7805) of the Internal Revenue Code of 1954), 26 U.S.C. 7805. Section 55.6011-1 also issued under 26 U.S.C. 6011(a); Section 55.6071-1 also issued under 26 U.S.C. 6071(a); Section 55.6091-1 also issued under 26 U.S.C. 6091(a); Section 55.6151-1 also issued under 26 U.S.C. 6151.

Source: T.D. 7767, 46 FR 11282, Feb. 6, 1981; 46 FR 15263, Mar. 5, 1981, unless otherwise noted.

26 CFR 54.6071-1T Subpart A -- Excise Tax On Real Estate Investment Trusts

26 CFR 55.4981-1 Imposition of excise tax on certain real estate investment trust taxable income not distributed during the taxable year; taxable years ending on or before January 1, 1987.

Section 4981 as in effect before amendment by the Tax Reform Act of 1986 imposes an excise tax on a real estate investment trust if the deduction for dividends paid for the taxable year does not equal at least 75 percent of its real estate investment trust taxable income (computed as provided in section 4981 as in effect before amendment by the Tax Reform Act of 1986) for the taxable year. For purposes of section 4981 as in effect before amendment by the Tax Reform Act of 1986, the deduction for dividends paid is computed without regard to capital gains dividends (as defined in section 857(b)(3)(C)) and without regard to any dividends actually paid after the close of the taxable year. Thus, dividends considered as paid during the taxable year under section 858 are disregarded. Deficiency dividends (as defined in section 860(f) paid with respect to the taxable year are also disregarded. The return referred to in the last sentence of section 4981 as in effect before amendment by the Tax Reform Act of 1986 in the income tax return. Section 4981 as in effect before amendment by the Tax Reform Act of 1986, applies only to taxable years beginning after December 31, 1979 and ending before January 1, 1987, for which the taxpayer is taxable under Part II of Subchapter M of Chapter 1 of subtitle A as a real estate investment trust.

(T.D. 7767, 46 FR 11282, Feb. 6, 1981; 46 FR 15263, Mar. 5, 1981; T.D. 7936, 49 FR 2109, Jan. 18, 1984; T.D. 8180, 53 FR 6147, Mar. 1, 1988)

26 CFR 55.4981-2 Imposition of excise tax with respect to certain undistributed income of real estate investment trusts; calendar years beginning after December 31, 1986.

Section 4981, as amended by the Tax Reform Act of 1986, imposes an excise tax on a real estate investment trust in the amount of four percent of the excess, if any, of the required distribution for a calendar year over the distributed amount for such calendar year. Section 4981, as so amended, applies only to calendar years that begin after December 31, 1986. For provisions relating to the imposition of an excise tax with respect to certain undistributed income of real estate investment trusts for taxable years ending before January 1, 1987, see 55.4981-1.

(T.D. 8180, 53 FR 6148, Mar. 1, 1988)

26 CFR 55.4981-2 Subpart B -- Excise Tax on Regulated Investment Companies

26 CFR 55.4982-1 Imposition of excise tax on undistributed income of regulated investment companies.

Section 4982 imposes an excise tax on a regulated investment company in the amount of four percent of the excess, if any, of the required distribution for a calendar year over the distributed amount for such calendar year. Section 4982 applies only to calendar years beginning after December 31, 1986.

(T.D. 8180, 53 FR 6148, Mar. 1, 1988)

26 CFR 55.4982-1 Subpart C -- Procedure and Administration

Source: T.D. 7767, 46 FR 11282, Feb. 6, 1981; 46 FR 15263, Mar. 5, 1981. Redesignated by T.D. 8180, 53 FR 6148, Mar. 1, 1988.

26 CFR 55.6001-1 Notice or regulations requiring records, statements, and special returns.

(a) In general. Any person subject to tax under Chapter 44 of the Code shall keep such complete and detailed records as are sufficient to enable the district director to determine accurately the amount of liability under Chapter 44.

(b) Notice by district director requiring returns, statements, or the keeping of records. The district director may require any person, by notice served upon him, to make such returns, render such statements, or keep such specific records as will enable the district director to determine whether or not such person is liable for tax under Chapter 44.

(c) Retention of records. The records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees, and shall be retained so long as the contents thereof may become material in the administration of any internal revenue law.

26 CFR 55.6011-1 General requirement of return, statement, or list.

Every person liable for tax under Chapter 44 shall file an annual return with respect to the tax on the form prescribed by the Internal Revenue Service for such purpose and shall include therein the information required by the form and the instructions issued with respect thereto. For calendar years beginning after December 31, 1986, the return, which must be made on a calendar year basis, shall be filed by a real estate investment trust on Form 8612 and by a regulated investment company on Form 8613.

(T.D. 8180, 53 FR 6148, Mar. 1, 1988)

26 CFR 55.6061-1 Signing of returns and other documents.

Any return required to be made by a real estate investment trust or a regulated investment company with respect to the tax imposed by Chapter 44 shall be signed by a person authorized by section 6062 of the Code to sign the income tax return of the real estate investment trust or the regulated investment company. Any statement or other document required to be made with respect to the tax imposed by Chapter 44 shall be signed by the person required or duly authorized to sign in accordance with the regulations, forms, or instructions prescribed with respect to such statement or document. An individual's signature on a return, statement, or other document made by or for the real estate investment trust or the regulated investment company shall be prima facie evidence that the individual is authorized to sign the return, statement, or other document.

(T.D. 8180, 53 FR 6148, Mar. 1, 1988)

26 CFR 55.6065-1 Verification of returns.

If a return, statement, or other document made under the provisions of Chapter 44 or Subtitle F or the Code or the regulations thereunder with respect to any tax imposed by Chapter 44 of the Code, or the form and instructions issued with respect to such return, statement, or other document, requires that it shall contain or be verified by a written declaration that it is made under the penalties of perjury, it must be so verified by the person or persons required to sign such return, statement, or other document. In addition, any other statement or document submitted under any provision of Chapter 44 or Subtitle F of the Code or regulations thereunder with respect to any tax imposed by Chapter 44 of the Code may be required to contain or be verified by a written declaration that it is made under the penalties of perjury.

26 CFR 55.6071-1 Time for filing returns.

(a) Returns for calendar years beginning after December 31, 1986. A return required by 55.6011-1 for any calendar year beginning after December 31, 1986, shall be filed on or before March 15 of the following calendar year. See 55.6081-1 for rules relating to extensions of time for filing a return required by 55.6011-1.

(b) Returns for excise tax under section 4981 as in effect before amendment by the Tax Reform Act of 1986. A return required by 55.6011-1 for any excise tax under section 4981, as in effect before amendment by the Tax Reform Act of 1986, shall be filed at the time (including any extension of time granted or allowed under section 6081) that the real estate investment trust is required to file its income tax return under section 6012 for the taxable year for which the tax under section 4981, as in effect before amendment by the Tax Reform Act of 1986, is imposed.

(T.D. 8180, 53 FR 6148, Mar. 1, 1988)

26 CFR 55.6081-1 Extension of time for filing the return.

District directors and directors of service centers are authorized to grant a reasonable extension of time for filing any return, statement, or other document which relates to any tax imposed by Chapter 44 and which is required under the provisions of Chapter 44 or the regulations thereunder. Extensions of time shall not be granted for more than 6 months. An extension of time for filing a return shall not operate to extend the time for the payment of the tax or any part thereof unless specified to the contrary in the extension. The rules relating to an application for extension in 53.6081-1(b) of this Chapter (relating to foundation excise taxes) shall apply to an application for an extension of time for filing the return of tax imposed by Chapter 44. If an extension of time for filing the return is granted, a return shall be filed before the expiration of the period of extension.

26 CFR 55.6091-1 Place for filing Chapter 44 tax returns.

Except as provided in 55.6091-2 (relating to exceptional cases):

(a) In general. Chapter 44 tax returns shall be filed with the district director for the internal revenue district in which is located the principal place of business or principal office or agency of the real estate investment trust or regulated investment company.

(b) Returns filed with service centers or by hand carrying. Notwithstanding paragraph (a) of this section, unless a return is filed by hand carrying, whenever instructions applicable to Chapter 44 tax returns provide that the returns be filed with a service center, the returns must be so filed in accordance with the instructions. Returns which are filed by hand carrying shall be filed with the district director (or with any person assigned the administrative supervision of an area, zone, or local office constituting a permanent post of duty within an internal revenue district of such director) in accordance with paragraph (a) of this section.

(T.D. 7767, 46 FR 11282, Feb. 6, 1981; 46 FR 15263, Mar. 5, 1981. Redesignated and amended by T.D. 8180, 53 FR 6148, Mar. 1, 1988)

26 CFR 55.6091-2 Exceptional cases.

Notwithstanding the provisions of 55.6091-1, the Commissioner may permit the filing of any Chapter 44 tax return in any internal revenue district.

26 CFR 55.6151-1 Time and place for paying of tax shown on returns.

The tax shown on any return which is imposed by Chapter 44 shall, without notice or assessment and demand, be paid to the internal revenue officer with whom the return is filed at the time and place for filing such return (determined without regard to any extension of time for filing the return). For provisions relating to the time and place for filing such return, see 55.6071-1 and 55.6091-1. For provisions relating to the extension of time for paying the tax see 55.6161-1.

(T.D. 8180, 53 FR 6148, Mar. 1, 1988)

26 CFR 55.6161-1 Extension of time for paying tax or deficiency.

(a) In general -- (1) Tax shown or required to be shown on return. A reasonable extension of the time for payment of the amount of any tax imposed by Chapter 44 and shown or required to be shown on any return, may be granted by the district directors at the request of the taxpayer. The period of such extension shall not be in excess of 6 months from the date fixed for payment of such tax.

(2) Deficiency. The time for payment of any amount determined as a deficiency in respect of tax imposed by Chapter 44 may, at the request of the taxpayer, be extended by the internal revenue officer to whom the tax is required to be paid. The extension may be for a period not to exceed 18 months from the date fixed for payment of the deficiency, as shown on the notice and demand. In exceptional cases, a further extension for a period not in excess of 12 months may be granted. No extension of time for payment of a deficiency shall be granted if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.

(3) Extension of time for filing distinguished. The granting of an extension of time for filing a return does not operate to extend the time for the payment of the tax or any part thereof unless so specified in the extension.

(b) Certain rules relating to extension of time for paying income tax to apply. The provisions of 1.6161-1 (b), and (c), and (d) of this hapter (relating to a requirement for undue hardship, the application for extension, and payment pursuant to an extension) shall apply to extensions of time for payment of the tax imposed by Chapter 44.

26 CFR 55.6165-1 Bonds where time to pay tax or deficiency has been extended.

If an extension of time for payment of tax or deficiency is granted under section 6161, the district director or the director of the service center may, if he deems it necessary, require a bond for the payment of the amount in respect of which the extension is granted in accordance with the terms of the extension. However, the bond shall not exceed double the amount with respect to which the extension is granted. For provisions relating to form of bonds, see the regulations under section 7101 contained in Part 301 of this chapter (Regulations on Procedure and Administration).

26 CFR 55.6165-1 PART 56 -- PUBLIC CHARITY EXCISE TAXES

Sec.

56.4911-0 Outline of regulations under section 4911.

56.4911-1 Tax on excess lobbying expenditures.

56.4911-2 Lobbying expenditures, direct lobbying communications, and grass roots lobbying communications.

56.4911-3 Expenditures for direct and/or grass roots lobbying communications.

56.4911-4 Exempt purpose expenditures.

56.4911-5 Communications with members.

56.4911-6 Records of lobbying and grass roots expenditures.

56.4911-7 Affiliated group of organizations.

56.4911-8 Excess lobbying expenditures of affiliated group.

56.4911-9 Application of section 501(h) to affiliated groups of organizations.

56.4911-10 Members of a limited affiliated group of organizations.

56.6001-1 Notice of regulations requiring records, statements, and special returns.

56.6011-1 General requirement of return, statement, or list.

Authority: 26 U.S.C. 7805. Sec. 56.4911-7 also issued under 26 U.S.C. 4911(f)(3).

Source: T.D. 8308, 55 FR 35598, Aug. 31, 1990, unless otherwise noted.

26 CFR 56.4911-0 Outline of regulations under section 4911.

Immediately following is an outline of the regulations under section 4911 of the Internal Revenue Code relating to an excise tax on electing public charities' excess lobbying expenditures.

56.4911-0 Outline of regulations under section 4911. 56.4911-1 Tax on excess lobbying expenditures.

(a) In general.

(b) Excess lobbying expenditures.

(c) Nontaxable amounts.

(1) Lobbying nontaxable amount.

(2) Grass roots nontaxable amount.

(d) Examples.

56.4911-2 Lobbying expenditures, direct lobbying communications, and grass roots lobbying communications.

(a) Lobbying expenditures.

(1) In general.

(2) Overview of 56.4911 and the definitions of ''direct lobbying communication'' and ''grass roots lobbying communication''.

(b) Influencing legislation: direct and grass roots lobbying communications defined.

(1) Direct lobbying communication.

(2) Grass roots lobbying communication.

(3) Exceptions to the definition of influencing legislation.

(4) Examples.

(5) Special rule for certain mass media advertisements.

(c) Exceptions to the definitions of direct lobbying communication and grass roots lobbying communication.

(1) Nonpartisan analysis, study, or research exception.

(2) Examinations and discussions of broad social, economic, and similar problems.

(3) Requests for technical advice.

(4) Communications pertaining to ''self-defense'' by the organization.

(d) Definitions.

(1) Legislation.

(2) Action.

(3) Legislative body.

(4) Administrative bodies.

56.4911-3 Expenditures for direct and/or grass roots lobbying communications.

(a) Definition of term ''expenditures for''.

(1) In general.

(2) Allocation of mixed purpose expenditures.

(3) Allocation of mixed lobbying.

(b) Examples.

(c) Certain transfers treated as lobbying expenditures.

(1) Transfer earmarked for grass roots purposes.

(2) Transfer earmarked for direct and grass roots lobbying.

(3) Certain transfers to noncharities that lobby.

56.4911-4 Exempt purpose expenditures.

(a) Application.

(b) Included expenditures.

(c) Excluded expenditures.

(d) Certain transfers treated as exempt purpose expenditures.

(e) Transfers not exempt purpose expenditures.

(f) Definitions.

(g) Example.

56.4911-5 Communications with members.

(a) In general.

(b) Communications (directed only to members) that are not lobbying communications.

(c) Communications (directed only to members) that are direct lobbying communications.

(d) Communications (directed only to members) that are grass roots lobbying communications.

(e) Written communications directed to members and nonmembers.

(1) In general.

(2) Direct lobbying directly encouraged.

(3) Grass roots expenditure if grass roots lobbying directly encouraged.

(4) No direct encouragement of direct lobbying or of grass roots lobbying.

(f) Definitions and special rules.

(1) Member; general rule.

(2) Member; special rule.

(3) Member; affiliated group of organizations.

(4) Member; limited affiliated group of organizations.

(5) Subscriber.

(6) Directly encourages.

(7) Percentages of total distribution.

(8) Reasonable allocation rule.

56.4911-6 Records of lobbying and grass roots expenditures.

(a) Records of lobbying expenditures.

(b) Records of grass roots expenditures.

56.4911-7 Affiliated group of organizations.

(a) Affiliation between two organizations.

(1) In general.

(2) Organizations not described in section 501(c)(3).

(3) Action on legislative issues.

(b) Interlocking governing boards.

(1) In general.

(2) Majority or quorum.

(3) Votes required under governing instrument or local law.

(4) Representatives constituting less than 15% of governing board.

(5) Representatives.

(c) Governing instrument.

(d) Three or more organizations affiliated.

(1) Two controlled organizations affiliated.

(2) Chain rule.

(e) Affiliated group of organizations.

(1) Defined.

(2) Multiple membership.

(3) Taxable year of affiliated group.

(4) Electing member organization.

(5) Election of member's year as group's taxable year.

(f) Examples.

56.4911-8 Excess lobbying expenditures of affiliated group.

(a) Application.

(b) Affiliated group treated as one organization.

(c) Tax imposed on excess lobbying expenditures of affiliated group.

(d) Liability for tax.

(1) Electing organizations.

(2) Tax based on excess lobbying expenditures.

(3) Tax based on excess grass roots expenditures.

(4) Tax based on exempt purpose expenditures.

(5) Taxable year for which liable.

(6) Organization a member of more than one affiliated group.

(e) Former member organizations.

56.4911-9 Application of section 501(h) to affiliated groups of organizations.

(a) Scope.

(b) Determination required.

(c) Member organizations that are not electing organizations.

(d) Filing of information relating to affiliated group of organizations.

(1) Scope.

(2) In general.

(3) Additional information required.

(4) Information required of electing member organization.

(e) Example.

(f) Cross reference.

56.4911-10 Members of a limited affiliated group of organizations.

(a) Scope.

(b) Members of limited affiliated group.

(c) Controlling and controlled organizations.

(d) Expenditures of controlling organization.

(1) Scope.

(2) Expenditures for direct lobbying.

(3) Grass roots expenditures.

(4) Exempt purpose expenditures.

(e) Expenditures of controlled member.

(f) Reports of members of limited affiliated groups.

(1) Controlling member organization's additional information on annual return.

(2) Reports of controlling members to other members.

(3) Reports of controlled member organizations.

(g) National legislative issues.

(h) Examples.

56.6001-1 Notice or regulations requiring records, statements, and special returns.

(a) In general.

(b) Cross references.

56.6011-1 General requirement of return, statement, or list.

26 CFR 56.4911-1 Tax on excess lobbying expenditures.

(a) In general. Section 4911(a) imposes an excise tax of 25 percent on the excess lobbying expenditures (as defined in paragraph (b) of this section) for a taxable year of an organization for which the expenditure test election under section 501(h) is in effect (an ''electing public charity''). An electing public charity's annual limit on expenditures for influencing legislation (i.e., the amount of lobbying expenditures on which no tax is due) is the lobbying nontaxable amount or, on expenditures for influencing legislation through grass roots lobbying, the grass roots nontaxable amount (see paragraph (c) of this section). For rules concerning the application of the excise tax imposed by section 4911(a) to the members of an affiliated group of organizations (as defined in 56.4911-7(e)), see 56.4911-8.

(b) Excess lobbying expenditures. For any taxable year for which the expenditure test election under section 501(h) is in effect, the amount of an electing public charity's excess lobbying expenditures is the greater of --

(1) The amount by which the organization's lobbying expenditures (within the meaning of 56.4911-2(a)) exceed the organization's lobbying nontaxable amount, or

(2) The amount by which the organization's grass roots expenditures (within the meaning of 56.4911-2(a)) exceed the organization's grass roots nontaxable amount.

(c) Nontaxable amounts -- (1) Lobbying nontaxable amount. Under section 4911(c)(2), the lobbying nontaxable amount for any taxable year for which the expenditure test election is in effect is the lesser of --

(i) $1,000,000, or

(ii) To the extent of the electing public charity's exempt purpose expenditures (within the meaning of 56.4911-4) for that year, the sum of 20 percent of the first $500,000 of such expenditures, plus 15 percent of the second $500,000 of such expenditures, plus 10 percent of the third $500,000 of such expenditures, plus 5 percent of the remainder of such expenditures.

(2) Grass roots nontaxable amount. Under section 4911(c)(4), an electing public charity's grass roots nontaxable amount for any taxable year is 25 percent of its lobbying nontaxable amount for that year.

(d) Examples. The provisions of this section are illustrated by the examples in 1.501(h)-3.

26 CFR 56.4911-2 Lobbying expenditures, direct lobbying communications, and grass roots lobbying communications.

(a) Lobbying expenditures -- (1) In general. An electing public charity's lobbying expenditures for a year are the sum of its expenditures during that year for direct lobbying communications (''direct lobbying expenditures'') plus its expenditures during that year for grass roots lobbying communications (''grass roots expenditures'').

(2) Overview of 56.4911-2 and the definitions of ''direct lobbying communication'' and ''grass roots lobbying communication''. Paragraph (b)(1) of this section defines the term ''direct lobbying communication.'' Paragraph (b)(2) of this section provides the general definition of the term ''grass roots lobbying communication.'' (But also see paragraph (b)(5) of this section (special rebuttable presumption regarding certain paid mass media communications) and 56.4911-5 (special, more lenient, definitions for certain communications from an electing public charity to its bona fide members)). Paragraph (b)(3) of this section lists and cross-references various exceptions to the definitions set forth in paragraphs (b) (1) and (2) (the text of the exceptions, along with relevant definitions and examples, is generally set forth in paragraph (c)). Paragraph (b)(4) of this section contains numerous examples illustrating the application of paragraphs (b) (1), (2) and (3). As mentioned above, paragraph (b)(5) of this section sets forth the special rebuttable presumption regarding a limited number of paid mass media communications about highly publicized legislation. Paragraph (d) of this section contains definitions of (and examples illustrating) various terms used in this section.

(b) Influencing legislation: direct and grass roots lobbying communications defined -- (1) Direct lobbying communication -- (i) Definition. A direct lobbying communication is any attempt to influence any legislation through communication with:

(A) Any member or employee of a legislative body; or

(B) Any government official or employee (other than a member or employee of a legislative body) who may participate in the formulation of the legislation, but only if the principal purpose of the communication is to influence legislation.

(ii) Required elements. A communication with a legislator or government official will be treated as a direct lobbying communication under this 56.4911-2(b)(1) if, but only if, the communication:

(A) Refers to specific legislation (see paragraph (d)(1) of this section for a definition of the term ''specific legislation''); and

(B) Reflects a view on such legislation.

(iii) Special rule for referenda, ballot initiatives or similar procedures. Solely for purposes of this section 4911, where a communication refers to and reflects a view on a measure that is the subject of a referendum, ballot initiative or similar procedure, the general public in the State or locality where the vote will take place constitutes the legislative body, and individual members of the general public area, for purposes of this paragraph (b)(1), legislators. Accordingly, if such a communication is made to one or more members of the general public in that state or locality, the communication is a direct lobbying communication (unless it is nonpartisan analysis, study or research (see paragraph (c)(1) of this section).

(2) Grass roots lobbying communication -- (i) Definition. A grass roots lobbying communication is any attempt to influence any legislation through an attempt to affect the opinions of the general public or any segment thereof.

(ii) Required elements. A communication will be treated as a grass roots lobbying communication under this 56.4911-2(b)(2)(ii) if, but only if, the communication:

(A) Refers to specific legislation (see paragraph (d)(1) of this section for a definition of the term ''specific legislation'');

(B) Reflects a view on such legislation; and

(C) Encourages the recipient of the communication to take action with respect to such legislation (see paragraph (b)(2)(iii) of this section for the definition of encouraging the recipient to take action.

For special, more lenient rules regarding an organization's communications directed only or primarily to bona fide members of the organization, see 56.4911-5. For special rules regarding certain paid mass media advertisements about highly publicized legislation, see paragraph (b)(5) of this section. For special rules regarding lobbying on referenda, ballot initiatives and similar procedures, see paragraph (b)(1)(iii) of this section).

(iii) Definition of encouraging recipient to take action. For purposes of this section, encouraging a recipient to take action with respect to legislation means that the communication:

(A) States that the recipient should contact a legislator or an employee of a legislative body, or should contact any other government official or employee who may participate in the formulation of legislation (but only if the principal purpose of urging contact with the government official or employee is to influence legislation);

(B) States the address, telephone number, or similar information of a legislator or an employee of a legislative body;

(C) Provides a petition, tear-off postcard or similar material for the recipient to communicate with a legislator or an employee of a legislative body, or with any other government official or employee who may participate in the formulation of legislation (but only if the principal purpose of so facilitating contact with the government official or employee is to influence legislation); or

(D) Specifically identifies one or more legislators who will vote on the legislation as: opposing the communication's view with respect to the legislation; being undecided with respect to the legislation; being the recipient's representative in the legislature; or being a member of the legislative committee or subcommittee that will consider the legislation. Encouraging the recipient to take action under this paragraph (b)(2)(iii)(D) does not include naming the main sponsor(s) of the legislation for purposes of identifying the legislation.

(iv) Definition of directly encouraging recipient to take action. Communications described in one or more of paragraphs (b)(2)(iii) (A) through (C) of this section not only ''encourage,'' but also ''directly encourage'' the recipient to take action with respect to legislation. Communications described in paragraph (b)(2)(iii)(D) of this section, however, do not directly encourage the recipient to take action with respect to legislation. Thus, a communication would encourage the recipient to take action with respect to legislation, but not directly encourage such action, if the communication does no more than identify one or more legislators who will vote on the legislation as: opposing the communication's view with respect to the legislation; being undecided with respect to the legislation; being the recipient's representative in the legislature; or being a member of the legislative committee or subcommittee that will consider the legislation. Communications that encourage the recipient to take action with respect to legislation but that do not directly encourage the recipient to take action with respect to legislation may be within the exception for nonpartisan analysis, study or research (se paragraph (c)(1) of this section) and thus not be grass roots lobbying communications.

(v) Subsequent lobbying use of nonlobbying communications or research materials -- (A) Limited effect of application. Even though certain communications or research materials are initially not grass roots lobbying communications under the general definition set forth in paragraph (b)(2)(ii) of this section, subsequent use of the communications or research materials for grass roots lobbying may cause them to be treated as grass roots lobbying communications. This paragraph (b)(2)(v) does not cause any communications or research materials to be considered direct lobbying communications.

(B) Limited scope of application. Under this paragraph (b)(2)(v), only ''advocacy communications or research materials'' are potentially treated as grass roots lobbying communications. Communications or research materials that are not ''advocacy communications or research materials'' are not treated as grass roots lobbying communications under this paragraph (b)(2)(v). ''Advocacy communications or research materials'' are any communications or materials that both refer to and reflect a view on specific legislation but that do not, in their initial format, contain a direct encouragement for recipients to take action with respect to legislation.

(C) Subsequent use in lobbying. Where advocacy communications or research materials are subsequently accompanied by a direct encouragement for recipients to take action with respect to legislation, the advocacy communications or research materials themselves are treated as grass roots lobbying communications unless the organization's primary purpose in undertaking or preparing the advocacy communications or research materials was not for use in lobbying. In such a case, all expenses of preparing and distributing the advocacy communications or research materials will be treated as grass roots expenditures.

(D) Time limit on application of subsequent use rule. The characterization of expenditures as grass roots lobbying expenditures under paragraph (b)(2)(v)(C) shall apply only to expenditures paid less than six months before the first use of the advocacy communications or research materials with a direct encouragement to action.

(E) Safe harbor in determining ''primary purpose''. The primary purpose of the organization in undertaking or preparing advocacy communications or research materials will not be considered to be for use in lobbying if, prior to or contemporaneously with the use of the advocacy communications or research materials with the direct encouragement to action, the organization makes a substantial nonlobbying distribution of the advocacy communications or research materials (without the direct encouragement to action). Whether a distribution is substantial will be determined by reference to all of the facts and circumstances, including the normal distribution pattern of similar nonpartisan analyses, studies or research by that and similar organizations.

(F) Special rule for partisan analysis, study or research. In the case of advocacy communications or research materials that are not nonpartisan analysis, study or research, the nonlobbying distribution thereof will not be considered ''substantial'' unless that distribution is at least as extensive as the lobbying distribution thereof.

(G) Factors considered in determining primary purpose. Where the nonlobbying distribution of advocacy communications or research materials is not substantial, all of the facts and circumstances must be weighed to determine whether the organization's primary purpose in preparing the advocacy communications or research materials was for use in lobbying. While not the only factor, the extent of the organization's nonlobbying distribution of the advocacy communications or research materials is particularly relevant, especially when compared to the extent of their distribution with the direct encouragement to action. Another particularly relevant factor is whether the lobbying use of the advocacy communications or research materials is by the organization that prepared the document, a related organization, or an unrelated organization. Where the subsequent lobbying distribution is made by an unrelated organization, clear and convincing evidence (which must include evidence demonstrating cooperation or collusion between the two organizations) will be required to establish that the primary purpose for preparing the communication for use in lobbying.

(H) Examples. The provisions of this paragraph (b)(2)(v) are illustrated by the following examples:

Example (1). Assume a nonlobbying ''report'' (that is not nonpartisan analysis, study or research) is prepared by an organization, but distributed to only 50 people. The report, in that format, refers to and reflects a view on specific legislation but does not contain a direct encouragement for the recipients to take action with respect to legislation. Two months later, the organization sends the report to 10,000 people along with a letter urging recipients to write their Senators about the legislation discussed in the report. Because the report's nonlobbying distribution is not as extensive as its lobbying distribution, the report's nonlobbying distribution is not substantial for purposes of this paragraph (b)(2)(v). Accordingly, the organization's primary purpose in preparing the report must be determined by weighing all of the facts and circumstances. In light of the relatively minimal nonlobbying distribution and the fact that the lobbying distribution is by the preparing organization rather than by an unrelated organization, and in the absence of evidence to the contrary, both the report and the letter are grass roots lobbying communications. Assume that all costs of preparing the report were paid within the six months preceding the mailing of the letter. Accordingly, all of the organization's expenditures for preparing and mailing the two documents are grass roots lobbying expenditures.

Example (2). Assume the same facts as in Example (1), except that the costs of the report are paid over the two month period of January and February. Between January 1 and 31, the organization pays $1,000 for the report. In February, the organization pays $500 for the report. Further assume that the report is first used with a direct encouragement to action on August 1. Six months prior to August 1 is February 1. Accordingly, no costs paid for the report before February 1 are treated as grass roots lobbying expenditures under the subsequent use rule. Under these facts, the subsequent use rule treats only the $500 paid for the report in February as grass roots lobbying expenditures.

(3) Exceptions to the definition of influencing legislation. In many cases, a communication is not a direct or grass roots lobbying communication under paragraph (b)(1) or (b)(2) of this section if it falls within one of the exceptions listed in paragraph (c) of this section. See paragraph (c)(1), Nonpartisan analysis, study or research; paragraph (c)(2), Examinations and discussions of broad social, economic and similar problems; paragraph (c)(3), Requests for technical advice; and paragraph (c)(4), Communications pertaining to self-defense by the organization. In addition, see 56.4911-5, which provides special rules regarding the treatment of certain lobbying communications directed in whole or in part to members of an electing public charity.

(4) Examples. This paragraph (b)(4) provides examples to illustrate the rules set forth in the section regarding direct and grass roots lobbying. The expenditure test election under section 501(h) is assumed to be in effect for all organizations discussed in the examples in this paragraph (b)(4). In addition, it is assumed that the special rules of 56.4911-5, regarding certain of a public charity's communications with its members, do not apply to any of the examples in this paragraph (b)(4).

(i) Direct lobbying. The provisions of this section regarding direct lobbying communications are illustrated by the following examples:

Example (1). Organization P's employee, X, is assigned to approach members of Congress to gain their support for a pending bill. X drafts and P prints a position letter on the bill. P distributes the letter to members of Congress. Additionally, X personally contacts several members of Congress or their staffs to seek support for P's position on the bill. The letter and the personal contacts are direct lobbying communications.

Example (2). Organization M's president writes a letter to the Congresswoman representing the district in which M is headquartered, requesting that the Congresswoman write an administrative agency regarding proposed regulations recently published by that agency. M's president also requests that the Congresswoman's letter to the agency state the Congresswoman's support of M's application for a particular type of permit granted by the agency. The letter written by M's president is not a direct lobbying communication.

Example (3). Organization Z prepares a paper on a particular state's environmental problems. The paper does not reflect a view on any specific pending legislation or on any specific legislative proposal that Z either supports or opposes. Z's representatives give the paper to a state legislator. Z's paper is not a direct lobbying communication.

Example (4). State X enacts a statute that requires the licensing of all day care providers. Agency B in State X is charged with preparing rules to implement the bill enacted by State X. One week after enactment of the bill, organization C sends a letter to Agency B providing detailed proposed rules that organization C suggests to Agency B as the appropriate standards to follow in implementing the statute on licensing of day care providers. Organization C's letter to Agency B is not a lobbying communication.

Example (5). Organization B researches, prepares and prints a code of standards of minimum safety requirements in an area of common electrical wiring. Organization B sells the code of standards booklet to the public and its is widely used by professional in the installation of electrical wiring. A number of states have codified all, or part, of the code of standards as mandatory safety standards. On occasion, B lobbies state legislators for passage of the code of standards for safety reasons. Because the primary purpose of preparing the code of standards was the promotion of public safety and the standards were specifically used in a profession for that purpose, separate from any legislative requirement, the research, preparation, printing and public distribution of the code of standards is not an expenditure for a direct (or grass roots) lobbying communication. Costs, such as transportation, photocopying, and other similar expenses, incurred in lobbying state legislators for passage of the code of standards into law are expenditures for direct lobbying communications.

Example (6). On the organization's own initiative, representatives of Organization F present written testimony to a Congressional committee. The news media report on the testimony of Organization F, detailing F's opposition to a pending bill. The testimony is a direct lobbying communication but is not a grass roots lobbying communication.

Example (7). Organization R's monthly newsletter contains an editorial column that refers to and reflects a view on specific pending bills. R sends the newsletter to 10,000 nonmember subscribers. Senator Doe is among the subscribers. The editorial column in the newsletter copy sent to Senator Doe is not a direct lobbying communication because the newsletter is sent to Senator Doe in her capacity as a subscriber rather than her capacity as a legislator. (Note, though, that the editorial column may be a grass roots lobbying communication if it encourages recipients to take action with respect to the pending bills it refers to and on which it reflects a view).

Example (8). Assume the same facts as in Example (7), except that one of Senator Doe's staff members sees Senator Doe's copy of the editorial and writes to R requesting additional information. R responds with a letter that refers to and reflects a view on specific legislation. R's letter is a direct lobbying communication unless it is within one of the exceptions set forth in paragraph (c) of this section (such as the exception for nonpartisan analysis, study or research). (R's letter is not within the scope of the exception for responses to written requests from a legislative body or committee for technical advice (see paragraph (c)(3) of this section) because the letter is not in response to a written request from a legislative body or committee).

(ii) Grass roots lobbying. The provisions of this section regarding grass roots lobbying communications are illustrated in paragraph (b)(4)(ii)(A) of this section by examples of communications that are not grass roots lobbying communications and in paragraph (b)(4)(ii)(B) by examples of communications that are grass roots lobbying communications. The provisions of this section are further illustrated in paragraph (b)(4)(ii)(C), with particular regard to the exception for nonpartisan analysis, study, or research:

(A) Communications that are not grass roots lobbying communications.

Example (1). Organization L places in its newsletter an article that asserts that lack of new capital is hurting State W's economy. The article recommends that State W residents either invest more in local businesses or increase their savings so that funds will be available to others interested in making investments. The article is an attempt to influence opinions with respect to a general problem that might receive legislative attention and is distributed in a manner so as to reach and influence many individuals. However, the article does not refer to specific legislation that is pending in a legislative body, nor does the article refer to a specific legislative proposal the organization either supports or opposes. The article is not a grass roots lobbying communication.

Example (2). Assume the same facts as Example (1), except that the article refers to a bill pending in State W's legislature that is intended to provide tax incentives for private savings. The article praises the pending bill and recommends that it be enacted. However, the article does not encourage readers to take action with respect to the legislation. The article is not a grass roots lobbying communication.

Example (3). Organization B sends a letter to all persons on its mailing list. The letter includes an update on numerous environmental issues with a discussion of general concerns regarding pollution, proposed federal regulations affecting the area, and several pending legislative proposals. The letter endorses two pending bills and opposes another pending bill, but does not name any legislator involved (other than the sponsor of one bill, for purposes of identifying the bill), nor does it otherwise encourage the reader to take action with respect to the legislation. The letter is not a grass roots lobbying communication.

Example (4). A pamphlet distributed by organization Z discusses the dangers of drugs and encourages the public to send their legislators a coupon, printed with the statement ''I support a drug-free America.'' The term ''drug-free America'' is not widely identified with any of the many specific pending legislative proposals regarding drug issues. The pamphlet does not refer to any of the numerous pending legislative proposals, nor does the organization support or oppose a specific legislative proposal. The pamphlet is not a grass roots lobbying communication.

Example (5). A pamphlet distributed by organization B encourages readers to join an organization and ''get involved in the fight against drugs.'' The text states, in the course of a discussion of several current drug issues, that organization B supports a specific bill before Congress that would establish an expanded drug control program. The pamphlet does not encourage readers to communicate with legislators about the bill (such as by including the names of undecided or opposed legislators). The pamphlet is not a grass roots lobbying communication.

Example (6). Organization E, an environmental organization, routinely summarizes in each edition of its newsletter the new environment-related bills that have been introduced in Congress since the last edition of the newsletter. The newsletter identifies each bill by a bill number and the name of the legislation's sponsor. The newsletter also reports on the status of previously introduced environment-related bills. The summaries and status reports do not encourage recipients of the newsletter to take action with respect to legislation, as described in paragraphs (b)(2)(iii) (A) through (D) of this section. Although the summaries and status reports refer to specific legislation and often reflect a view on such legislation, they do not encourage the newsletter recipients to take action with respect to such legislation. The summaries and status reports are not grass roots lobbying communications.

Example (7). Organization B prints in its newsletter a report on pending legislation that B supports, the Family Equity bill. The report refers to and reflects a view on the Family Equity bill, but does not directly encourage recipients to take action. Nor does the report specifically identify any legislator as opposing the communication's view on the legislation, as being undecided, or as being a member of the legislative committee or subcommittee that will consider the legislation. However, the report does state the following:

Rep. Doe (D-Ky.) and Rep. Roe (R-Ma.), both ardent supporters of the Family Equity bill, spoke at B's annual convention last week. Both encouraged B's efforts to get the Family Equity bill enacted and stated that they thought the bill could be enacted even over a presidential veto. B's legislative affairs liaison questioned others, who seemed to agree with that assessment. For example, Sen. Roe (I-Ca.) said that he thinks the bill will pass with such a large majority, ''the President won't even consider vetoing it.''

Assume the newsletter, and thus the report, is sent to individuals throughout the U.S., including some recipients in Kentucky, Massachusetts and California. Because the report is distributed nationally, the mere fact that the report identifies several legislators by party and state as part of its discussion does not mean the report specifically identifies the named legislators as the Kentucky, Massachusetts and California recipients' representatives in the legislature for purposes of paragraph (b)(2)(iii) of this section. The report is not a grass roots lobbying communication.

(B) Communications that are grass roots lobbying communications.

Example (1). A pamphlet distributed by organization Y states that the ''President's plan for a drug-free America,'' which will establish a drug control program, should be passed. The pamphlet encourages readers to ''write or call your senators and representatives and tell them to vote for the President's plan.'' No legislative proposal formally bears the name ''President's plan for a drug-free America,'' but that and similar terms have been widely used in connection with specific legislation pending in Congress that was initially proposed by the President. Thus, the pamphlet refers to specific legislation, reflects a view on the legislation, and encourages readers to take action with respect to the legislation. The pamphlet is a grass roots lobbying communication.

Example (2). Assume the same facts as in Example (1), except that the pamphlet does not encourage the public to write or call representatives, but does list the members of the committee that will consider the bill. The pamphlet is a grass roots lobbying communication.

Example (3). Assume the same facts as in Example (1), except that the pamphlet encourages readers to ''write the President to urge him to make the bill a top legislative priority'' rather than encouraging readers to communicate with members of Congress. The pamphlet is a grass roots lobbying communication.

Example (4). Organization B, a nonmembership organization, includes in one of three sections of its newsletter an endorsement of two pending bills and opposition to another pending bill and also identifies several legislators as undecided on the three bills. The section of the newsletter devoted to the three pending bills is a grass roots lobbying communication.

Example (5). Organization D, a nonmembership organization, sends a letter to all persons on its mailing list. The letter includes an extensive discussion concluding that a significant increase in spending for the Air Force is essential in order to provide an adequate defense of the nation. Prior to a concluding fundraising request, the letter encourages readers to write their Congressional representatives urging increased appropriations to build the B-1 bomber. The letter is a grass roots lobbying communication.

Example (6). The President nominates X for a position in the President's cabinet. Organization Y disagrees with the views of X and does not believe X has the necessary administrative capabilities to effectively run a cabinet-level department. Accordingly, Y sends a general mailing requesting recipients to write to four Senators on the Senate Committee that will consider the nomination. The mailing is a grass roots lobbying communication.

Example (7). Organization F mails letters requesting that each recipient contribute money to or join F. In addition, the letters express F's opposition to a pending bill that is to be voted upon by the U.S. House of Representatives. Although the letters are form letters sent as a mass mailing, each letter is individualized to report to the recipient the name of the recipient's congressional representative. The letters are grass roots lobbying communications.

Example (8). Organization C sends a mailing that opposes a specific legislative proposal and includes a postcard addressed to the President for the recipient to sign stating opposition to the proposal. The letter requests that the recipient send to C a contribution as well as the postcard opposing the proposal. C states in the letter that it will deliver all the postcards to the White House. The letter is a grass roots lobbying communication.

(C) Additional examples.

Example (1). The newsletter of an organization concerned with drug issues is circulated primarily to individuals who are not members of the organization. A story in the newsletter reports on the prospects for passage of a specifically identified bill, stating that the organization supports the bill. The newsletter story identifies certain legislators as undecided, but does not state that readers should contact the undecided legislators. The story does not provide a full and fair exposition sufficient to qualify as nonpartisan analysis, study or research. The newsletter story is a grass roots lobbying communication.

Example (2). Assume the same facts as in Example (1), except that the newsletter story provides a full and fair exposition sufficient to qualify as nonpartisan analysis, study or research. The newsletter story is not a grass roots lobbying communication because it is within the exception for nonpartisan analysis, study or research (since it does not directly encourage recipients to take action).

Example (3). Assume the same facts as in Example (2), except that the newsletter story explicitly asks readers to contact the undecided legislators. Because the newsletter story directly encourages readers to take action with respect to the legislation, the newsletter story is not within the exception for nonpartisan analysis, study or research. Accordingly, the newsletter story is a grass roots lobbying communication.

Example (4). Assume the same facts as in Example (1), except that the story does not identify any undecided legislators. The story is not a grass roots lobbying communication.

Example (5). X organization places an advertisement that specifically identifies and opposes a bill that X asserts would harm the farm economy. The advertisement is not a mass media communication described in paragraph (b)(5)(ii) of this section and does not directly encourage readers to take action with respect to the bill. However, the advertisement does state that Senator Y favors the legislation. Because the advertisement refers to and reflects a view on specific legislation, and also encourages the readers to take action with respect to the legislation by specifically identifying a legislator who opposes X's views on the legislation, the advertisement is a grass roots lobbying communication.

Example (6). Assume the same facts as in Example (5), except that instead of identifying Senator Y as favoring the legislation, the advertisement identifies the ''junior Senator from State Z'' as favoring the legislation. The advertisement is a grass roots lobbying communication.

Example (7). Assume the same facts as in Example (5), except that instead of identifying Senator Y as favoring the legislation, the advertisement states: ''Even though this bill will have a devastating effect upon the farm economy, most of the Senators from the Farm Belt states are inexplicably in favor of the bill.'' The advertisement does not specifically identify one or more legislators as opposing the advertisement's view on the bill in question. Accordingly, the advertisement is not a grass roots lobbying communication because it does not encourage readers to take action with respect to the legislation.

Example (8). Organization V trains volunteers to go door-to-door to seek signatures for petitions to be sent to legislators in favor of a specific bill. The volunteers are wholly unreimbursed for their time and expenses. The volunteers' costs (to the extent any are incurred) are not lobbying or exempt purpose expenditures made by V (but the volunteers may not deduct their out-of-pocket expenditures (see section 170(f)(6)). When V asks the volunteers to contact others and urge them to sign the petitions, V encourages those volunteers to take action in favor of the specific bill. Accordingly, V's costs of soliciting the volunteers' help and its costs of training the volunteers are grass roots expenditures. In addition, the costs of preparing, copying, distributing, etc. the petitions (and any other materials on the same specific subject used in the door-to-door signature gathering effort), are grass roots expenditures.

(5) Special rule for certain mass media advertisements -- (i) In general. A mass media advertisement that is not a grass roots lobbying communication under the three-part grass roots lobbying definition contained in paragraph (b)(2) of this section may be a grass roots lobbying communication by virtue of paragraph (b)(5)(ii) of this section. The special rule in paragraph (b)(5)(ii) generally applies only to a limited type of paid advertisements that appear in the mass media.

(ii) Presumption regarding certain paid mass media advertisements about highly publicized legislation. If within two weeks before a vote by a legislative body, or a committee (but not a subcommittee) thereof, on a highly publicized piece of legislation, an organization's paid advertisement appears in the mass media, the paid advertisement will be presumed to be a grass roots lobbying communication, but only if the paid advertisement both reflects a view on the general subject of such legislation and either: refers to the highly publicized legislation; or encourages the public to communicate with legislators on the general subject of such legislation. An organization can rebut this presumption by demonstrating that the paid advertisement is a type of communication regularly made by the organization in the mass media without regard to the timing of legislation (that is, a customary course of business exception) or that the timing of the paid advertisement was unrelated to the upcoming legislative action. Notwithstanding the fact that an organization successfully rebuts the presumption, a mass media communication described in this paragraph (b)(5)(ii) is a grass roots lobbying communication if the communication would be a grass roots lobbying communication under the rules contained in paragraph (b)(2) of this section.

(iii) Definitions -- (A) Mass media. For purposes of this paragraph (b)(5), the term ''mass media'' means television, radio, billboards and general circulation newspapers and magazines. General circulation newspapers and magazines do not include newspapers or magazines published by an organization for which the expenditure test election under section 501(h) is in effect, except where both: The total circulation of the newspaper or magazine is greater than 100,000; and fewer than one-half of the recipients are members of the organization (as defined in 56.4911-5(f)).

(B) Paid advertisement. For purposes of this paragraph (b)(5), where an electing public charity is itself a mass media publisher or broadcaster, all portions of that organization's mass media publications or broadcasts are treated as paid advertisements in the mass media, except those specific portions that are advertisements paid for by another person. The term ''mass media'' is defined in paragraph (b)(5)(iii)(A).

(C) Highly publicized. For purposes of this paragraph (b)(5), ''highly publicized'' means frequent coverage on television and radio, and in general circulation newspapers, during the two weeks preceding the vote by the legislative body or committee. In the case of state or local legislation, ''highly publicized'' means frequent coverage in the mass media that serve the State or local jurisdiction in question. Even where legislation receives frequent coverage, it is ''highly publicized'' only if the pendency of the legislation or the legislation's general terms, purpose, or effect are known to a significant segment of the general public (as opposed to the particular interest groups directly affected) in the area in which the paid mass media advertisement appears.

(iv) Examples. The special rule of this paragraph (b)(5) is illustrated by the following examples. The expenditure test election under section 501(h) is assumed to be in effect for all organizations discussed in the examples in this paragraph (b)(5)(iv):

Example (1). Organization X places a television advertisement advocating one of the President's major foreign policy initiatives, as outlined by the President in a series of speeches and as drafted into proposed legislation. The initiative is popularly known as ''the President's World Peace Plan,'' and is voted upon by the Senate four days after X's advertisement. The advertisement concludes: ''SUPPORT THE PRESIDENT'S WORLD PEACE PLAN!'' The President's plan and position are highly publicized during the two weeks before the Senate vote, as evidenced by: coverage of the plan on several nightly television network news program; more than one article about the plan on the front page of a majority of the country's ten largest daily general circulation newspapers; and an editorial about the plan in four of the country's ten largest daily general circulation newspapers. Although the advertisement does not encourage readers to contact legislators or other government officials, the advertisement does refer to specific legislation and reflect a view on the general subject of the legislation. The communication is presumed to be a grass roots lobbying communication.

Example (2). Assume the same facts as in Example (1), except that the advertisement appears three weeks before the Senate's vote on the plan. Because the advertisement appears more than two weeks before the legislative vote, the advertisement is not within the scope of the special rule for mass media communications on highly publicized legislation. Accordingly, the advertisement is a grass roots lobbying communication only if it is described in the general definition contained in paragraph (b)(2) of this section. Because the advertisement does not encourage recipients to take action with respect to the legislation in question, the advertisement is not a grass roots lobbying communication.

Example (3). Organization Y places a newspaper advertisement advocating increased government funding for certain public works projects the President has proposed and that are being considered by a legislative committee. The advertisement explains the President's proposals and concludes: ''SUPPORT FUNDING FOR THESE VITAL PROJECTS!'' The advertisement does not encourage readers to contact legislators or other government officials nor does it name any undecided legislators, but it does name the legislation being considered by the committee. The President's proposed funding of public works, however, is not highly publicized during the two weeks before the vote: there has been little coverage of the issue on nightly television network news programs, only one front-page article on the issue in the country's ten largest daily general circulation newspapers, and only one editorial about the issue in the country's ten largest daily general circulation newspapers. Two days after the advertisement appears, the committee votes to approve funding of the projects. Although the advertisement appears less than two weeks before the legislative vote, the advertisement is not within the scope of the special rule for mass media communications on highly publicized legislation because the issue of funding for public works projects is not highly publicized. Thus, the advertisement is a grass roots lobbying communication only if it is described in the general definition contained in paragraph (b)(2) of this section. Because the advertisement does not encourage recipients to take action with respect to the legislation in question, the advertisement is not a grass roots lobbying communication.

Example (4). Organization P places numerous advertisements in the mass media about a bill being considered by the State Assembly. The bill is highly publicized, as evidenced by numerous front-page articles, editorials and letters to the editor published in the state's general circulation daily newspapers, as well as frequent coverage of the bill by the television and radio stations serving the state. The advertisements run over a three week period and, in addition to showing pictures of a family being robbed at gunpoint, say: ''The State Assembly is considering a bill to make gun ownership illegal. This outrageous legislation would violate your constitutional rights and the rights of other law-abiding citizens. If this legislation is passed, you and your family will be criminals if you want to exercise your right to protect yourselves.'' The advertisements refer to and reflect a view on a specific bill but do not encourage recipients to take action. Sixteen days after the last advertisement runs, a State Assembly committee votes to defeat the legislation. None of the advertisements is a grass roots lobbying communication.

Example (5). Assume the same facts as in Example (4), except that it is publicly announced prior to the advertising campaign that the committee vote is scheduled for five days after the last advertisement runs. Because of public pressure resulting from the advertising campaign, the bill is withdrawn and no vote is ever taken. None of the advertisements is a grass roots lobbying communication.

(c) Exceptions to the definitions of direct lobbying communication and grass roots lobbying communication -- (1) Nonpartisan analysis, study, or research exception -- (i) In general. Engaging in nonpartisan analysis, study, or research and making available to the general public or a segment or members thereof or to governmental bodies, officials, or employees the results of such work constitute neither a direct lobbying communication under 56.4911-2(b)(1) nor a grass roots lobbying communication under 56.4911-2(b)(2).

(ii) Nonpartisan analysis, study, or research. For purposes of this section, ''nonpartisan analysis, study, or research'' means an independent and objective exposition of a particular subject matter, including any activity that is ''educational'' within the meaning of 1.501(c)(3)-1(d)(3). Thus, ''nonpartisan analysis, study, or research'' may advocate a particular position or viewpoint so long as there is a sufficiently full and fair exposition of the pertinent facts to enable the public or an individual to form an independent opinion or conclusion. The mere presentation of unsupported opinion, however, does not qualify as ''nonpartisan analysis, study, or research''.

(iii) Presentation as part of a series. Normally, whether a publication or broadcast qualifies as ''nonpartisan analysis, study, or research'' will be determined on a presentation-by-presentation basis. However, if a publication or broadcast is one of a series prepared or supported by an electing organization and the series as a whole meets the standards of paragraph (c)(1)(ii) of this section, then any individual publication or broadcast within the series is not a direct or grass roots lobbying communication even though such individual broadcast or publication does not, by itself, meet the standards of paragraph (c)(1)(ii) of this section. Whether a broadcast or publication is considered part of a series will ordinarily depend upon all the facts and circumstances of each particular situation. However, with respect to broadcast activities, all broadcasts within any period of six consecutive months will oridinarily be eligible to be considered as part of a series. If an electing organization times or channels a part of a series which is described in this paragraph (c)(1)(iii) in a manner designed to influence the general public or the action of a legislative body with respect to a specific legislative proposal, the expenses of preparing and distributing such part of the analysis, study, or research will be expenditures for a direct or grass roots lobbying communications, as the case may be.

(iv) Making available results of nonpartisan analysis, study, or research. An organization may choose any suitable means, including oral or written presentations, to distribute the results of its nonpartisan analysis, study, or research, with or without charge. Such means include distribution of reprints of speeches, articles and reports; presentation of information through conferences, meetings and discussions; and dissemination to the news media, including radio, television and newspapers, and to other public forums. For purposes of this paragraph (c)(1)(iv), such communications may not be limited to, or be directed toward, persons who are interested solely in one side of a particular issue.

(v) Subsequent lobbying use of certain analysis, study or research. Even though certain analysis, study or research is initially within the exception for nonpartisan analysis, study or research, subsequent use of that analysis, study or research for grass roots lobbying may cause that analysis, study or research to be treated as a grass roots lobbying communication that is not within the exception for nonpartisan analysis, study or research. This paragraph (c)(1)(v) does not cause any analysis, study or research to be considered a direct lobbying communication. For rules regarding when analysis, study or research is treated as a grass roots lobbying communication that is not within the scope of the exception for nonpartisan analysis, study or research, see paragraph (b)(2)(v) of this section.

(vi) Directly encouraging action by recipients of a communication. A communication that reflects a view on specific legislation is not within the nonpartisan analysis, study, or research exception of this paragraph (c)(1) if the communication directly encourages the recipient to take action with respect to such legislation. For purposes of this section, a communication directly encourages the recipient to take action with respect to legislation if the communication is described in one or more of paragraphs (b)(2)(iii) (A) through (C) of this section. As described in paragraph (b)(2)(iv) of this section, a communication would encourage the recipient to take action with respect to legislation, but not directly encourage such action, if the communication does no more than specifically identify one or more legislators who will vote on the legislation as: opposing the communication's view with respect to the legislation; being undecided with respect to the legislation; being the recipient's representative in the legislature; or being a member of the legislative committee or subcommittee that will consider the legislation.

(vii) Examples. The provisions of this paragraph (c)(1) may be illustrated by the following examples:

Example (1). Organization M establishes a research project to collect information for the purpose of showing the dangers of the use of pesticides in raising crops. The information collected includes data with respect to proposed legislation, pending before several State legislatures, which would ban the use of pesticides. The project takes favorable positions on such legislation without producing a sufficiently full and fair exposition of the pertinent facts to enable the public or an individual to form an independent opinion or conclusion on the pros and cons of the use of pesticides. This project is not within the exception for nonpartisan analysis, study, or research because it is designed to present information merely on one side of the legislative controversy.

Example (2). Organization N establishes a research project to collect information concerning the dangers of the use of pesticides in raising crops for the ostensible purpose of examining and reporting information as to the pros and cons of the use of pesticides in raising crops. The information is collected and distributed in the form of a published report which analyzes the effects and costs of the use and nonuse of various pesticides under various conditions on humans, animals and crops. The report also presents the advantages, disadvantages, and economic cost of allowing the continued use of pesticides unabated, of controlling the use of pesticides, and of developing alternatives to pesticides. Even if the report sets forth conclusions that the disadvantages as a result of using pesticides are greater than the advantages of using pesticides and that prompt legislative regulation of the use of pesticides is needed, the project is within the exception for nonpartisan analysis, study, or research since it is designed to present information on both sides of the legislative controversy and presents a sufficiently full and fair exposition of the pertinent facts to enable the public or an individual to form an independent opinion or conclusion.

Example (3). Organization O establishes a research project to collect information on the presence or absence of disease in humans from eating food grown with pesticides and the presence or absence of disease in humans from eating food not grown with pesticides. As part of the research project, O hires a consultant who prepares a ''fact sheet'' which calls for the curtailment of the use of pesticides and which addresses itself to the merits of several specific legislative proposals to curtail the use of pesticides in raising crops which are currently pending before State Legislatures. The ''fact sheet'' presents reports of experimental evidence tending to support its conclusions but omits any reference to reports of experimental evidence tending to dispute its conclusions. O distributes ten thousand copies to citizens' groups. Expenditures by O in connection with this work of the consultant are not within the exception for nonpartisan analysis, study, or research.

Example (4). P publishes a bi-monthly newsletter to collect and report all published materials, ongoing research, and new developments with regard to the use of pesticides in raising crops. The newsletter also includes notices of proposed pesticide legislation with impartial summaries of the provisions and debates on such legislation. The newsletter does not encourage recipients to take action with respect to such legislation, but is designed to present information on both sides of the legislative controversy and does present such information fully and fairly. It is within the exception for nonpartisan analysis, study, or research.

Example (5). X is satisfied that A, a member of the faculty of Y University, is exceptionally well qualified to undertake a project involving a comprehensive study of the effects of pesticides on crop yields. Consequently, X makes a grant to A to underwrite the cost of the study and of the preparation of a book on the effect of pesticides on crop yields. X does not take any position on the issues or control the content of A's output. A produces a book which concludes that the use of pesticides often has a favorable effect on crop yields, and on that basis argues against pending bills which would ban the use of pesticides. A's book contains a sufficiently full and fair exposition of the pertinent facts, including known or potential disadvantages of the use of pesticides, to enable the public or an individual to form an independent opinion or conclusion as to whether pesticides should be banned as provided in the pending bills. The book does not directly encourage readers to take action with respect to the pending bills. Consequently, the book is within the exception for nonpartisan analysis, study, or research.

Example (6). Assume the same facts as Example (2), except that, instead of issuing a report, X presents within a period of 6 consecutive months a two-program television series relating to the pesticide issue. The first program contains information, arguments, and conclusions favoring legislation to restrict the use of pesticides. The second program contains information, arguments, and conclusions opposing legislation to restrict the use of pesticides. The programs are broadcast within 6 months of each other during commensurate periods of prime time. X's programs are within the exception for nonpartisan analysis, study, or research. Although neither program individually could be regarded as nonpartisan, the series of two programs constitutes a balanced presentation.

Example (7). Assume the same facts as in Example (6), except that X arranged for televising the program favoring legislation to restrict the use of pesticides at 8:00 on a Thursday evening and for televising the program opposing such legislation at 7:00 on a Sunday morning. X's presentation is not within the exception for nonpartisan analysis, study, or research, since X disseminated its information in a manner prejudicial to one side of the legislative controversy.

Example (8). Organization Z researches, writes, prints and distributes a study on the use and effects of pesticide X. A bill is pending in the U.S. Senate to ban the use of pesticide X. Z's study leads to the conclusion that pesticide X is extremely harmful and that the bill pending in the U.S. Senate is an appropriate and much needed remedy to solve the problems caused by pesticide X. The study contains a sufficiently full and fair exposition of the pertinent facts, including known or potential advantages of the use of pesticide X, to enable the public or an individual to form an independent opinion or conclusion as to whether pesticides should be banned as provided in the pending bills. In its analysis of the pending bill, the study names certain undecided Senators on the Senate committee considering the bill. Although the study meets the three part test for determining whether a communication is a grass roots lobbying communication, the study is within the exception for nonpartisan analysis, study or research, because it does not directly encourage recipients of the communication to urge a legislator to oppose the bill.

Example (9). Assume the same facts as in Example (8), except that, after stating support for the pending bill, the study concludes: ''You should write to the undecided committee members to support this crucial bill.'' The study is not within the exception for nonpartisan analysis, study or research because it directly encourages the recipients to urge a legislator to support a specific piece of legislation.

Example (10). Organization X plans to conduct a lobbying campaign with respect to illegal drug use in the United States. It incurs $5,000 in expenses to conduct research and prepare an extensive report primarily for use in the lobbying campaign. Although the detailed report discusses specific pending legislation and reaches the conclusion that the legislation would reduce illegal drug use, the report contains a sufficiently full and fair exposition of the pertinent facts to enable the public or an individual to form an independent conclusion regarding the effect of the legislation. The report does not encourage readers to contact legislators regarding the legislation. Accordingly, the report does not, in and of itself, constitute a lobbying communication.

Copies of the report are available to the public at X's office, but X does not actively distribute the report or otherwise seek to make the contents of the report available to the general public. Whether or not X's distribution is sufficient to meet the requirement in 56.4911-2(c)(1)(iv) that a nonpartisan communication be made available, X's distribution is not substantial (for purposes of 56.4911-2(b)(2)(v)(E)) in light of all of the facts and circumstances, including the normal distribution pattern of similar nonpartisan reports. X then mails copies of the report, along with a letter, to 10,000 individuals on X's mailing list. In the letter, X requests that individuals contact legislators urging passage of the legislation discussed in the report. Because X's research and report were primarily undertaken by X for lobbying purposes and X did not make a substantial distribution of the report (without an accompanying lobbying message) prior to or contemporaneously with the use of the report in lobbying, the report is a grass roots lobbying communication that is not within the exception for nonpartisan analysis, study or research.

Example (11). Assume the same facts as in Example (10), except that before using the report in the lobbying campaign, X sends the research and report (without an accompanying lobbying message) to universities and newspapers. At the same time, X also advertises the availability of the report in its newsletter. This distribution is similar in scope to the normal distribution pattern of similar nonpartisan reports. In light of all of the facts and circumstances, X's distribution of the report is substantial. Because of X's substantial distribution of the report, X's primary purpose will be considered to be other than for use in lobbying and the report will not be considered a grass roots lobbying communication. Accordingly, only the expenditures for copying and mailing the report to the 10,000 individuals on X's mailing list, as well as for preparing and mailing the letter, are expenditures for grass roots lobbying communications.

Example (12). Organization M pays for a bumper sticker that reads: ''STOP ABORTION: Vote NO on Prop. X!'' M also pays for a 30-second television advertisement and a billboard that similarly advocate opposition to Prop. X. In light of the limited scope of the communications, none of the communications is within the exception for nonpartisan analysis, study or research. First, none of the communications rises to the level of analysis, study or research. Second, none of the communications is nonpartisan because none contains a sufficiently full and fair exposition of the pertinent facts to enable the public or an individual to form an independent opinion or conclusion. Thus, each communication is a direct lobbying communication.

(2) Examinations and discussions of broad social, economic, and similar problems. Examinations and discussions of broad social, economic, and similar problems are neither direct lobbying communications under 56.4911-2(b)(1) nor grass roots lobbying communications under 56.4911-2(b)(2) even if the problems are of the type with which government would be expected to deal ultimately. Thus, under 56.4911-2(b) (1) and (2), lobbying communications do not include public discussion, or communications with members of legislative bodies or governmental employees, the general subject of which is also the subject of legislation before a legislative body, so long as such discussion does not address itself to the merits of a specific legislative proposal and so long as such discussion does not directly encourage recipients to take action with respect to legislation. For example, this paragraph (c)(2) excludes from grass roots lobbying under 56.4911-2(b)(2) an organization's discussions of problems such as environmental pollution or population growth that are being considered by Congress and various State legislatures, but only where the discussions are not directly addressed to specific legislation being considered, and only where the discussions do not directly encourage recipients of the communication to contact a legislator, an employee of a legislative body, or a government official or employee who may participate in the formulation of legislation.

(3) Requests for technical advice. A communication is not a direct lobbying communication under 56.4911-2(b)(1) if the communication is the providing of technical advice or assistance to a governmental body, a governmental committee, or a subdivision of either in response to a written request by the body, committee, or subdivision, as set forth in 53.4945-2(d)(2).

(4) Communications pertaining to ''self-defense'' by the organization. A communication is not a direct lobbying communication under 56.4911-2(b)(1) if either:

(i) The communication is an appearance before, or communication with, any legislative body with respect to a possible action by the body that might affect the existence of the electing public charity, its powers and duties, its tax-exempt status, or the deductibility of contributions to the organization, as set forth in 53.4945-2(d)(3);

(ii) The communication is by a member of an affiliated group of organizations (within the meaning of 56.4911-7(e)), and is an appearance before, or communication with, a legislative body with respect to a possible action by the body that might affect the existence of any other member of the group, its powers and duties, its tax-exempt status, or the deductibility of contributions to it;

(iii) The communication is by an electing public charity more than 75 percent of the members of which are other organizations that are described in section 501(c)(3), and is an appearance before, or communication with, any legislative body with respect to a possible action by the body which might affect the existence of one or more of the section 501(c)(3) member organizations, their powers, duties, or tax-exempt status, or the deductibility (under section 170) of contributions to one or more of the section 501(c)(3) member organizations, but only if the principal purpose of the appearance or communication is to defend the section 501(c)(3) member organizations (rather than the non-section 501(c)(3) member organizations); or

(iv) The communication is by an electing public charity that is a member of a limited affiliated group or organizations under 56.4911-10, and is an appearance before, or communication with, the Congress of the United States with respect to a possible action by the Congress that might affect the existence of any member of the limited affiliated group, its powers and duties, tax-exempt status, or the deductibility of contributions to it.

(v) Under the self-defense exception of paragraphs (c)(4) (i) through (iv) of this section, a charity may communicate with an entire legislative body, with committees or subcommittees of a legislative body, with individual legislators, with legislative staff members, or with representatives of the executive branch who are involved with the legislative process, so long as such communication is limited to the prescribed subjects. Similarly, under the self-defense exception, a charity may make expenditures in order to initiate legislation if such legislation concerns only matters which might affect the existence of the charity, its powers and duties, its tax-exempt status, or the deductibility of contributions to such charity. For examples illustrating the application and scope of the self-defense exception of this paragraph (c)(4), see 53.4945-2(d)(3)(ii).

(d) Definitions. For purposes of section 4911 and the regulations thereunder --

(1) Legislation -- (i) In general. ''Legislation'' includes action by the Congress, any state legislature, any local council, or similar legislative body, or by the public in a referendum, ballot initiative, constitutional amendment, or similar procedure. ''Legislation'' includes a proposed treaty required to be submitted by the President to the Senate for its advice and consent from the time the President's representative begins to negotiate its position with the prospective parties to the proposed treaty.

(ii) Definition of specific legislation. For purposes of paragraphs (b)(1) and (b)(2) of this section, ''specific legislation'' includes both legislation that has already been introduced in a legislative body and a specific legislative proposal that the organization either supports or opposes. In the case of a referendum, ballot initiative, constitutional amendment, or other measure that is placed on the ballot by petitions signed by a required number or percentage of voters, an item becomes ''specific legislation'' when the petition is first circulated among voters for signature.

(iii) Examples. The terms ''legislation'' and ''specific legislation'' are illustrated using the following examples:

Example (1). A nonmembership organization includes in its newsletter an article about problems with the use of pesticide X that states in part: ''Legislation that is pending in Congress would prohibit the use of this very dangerous pesticide. Fortunately, the legislation will probably be passed. Write your congressional representatives about this important issue.'' This is a grass roots lobbying communication that refers to and reflects a view on specific legislation and that encourages recipients to take action with respect to that legislation.

Example (2). An organization based in State A notes in its newsletter that State Z has passed a bill to accomplish a stated purpose and then says that State A should pass such a bill. The organization urges readers to write their legislators in favor of such a bill. No such bill has been introduced into the State A legislature. The organization has referred to and reflected a view on a specific legislative proposal and has also encouraged readers to take action thereon.

(2) Action. The term ''action'' in paragraph (d)(1)(i) of this section is limited to the introduction, amendment, enactment, defeat or repeal of Acts, bills, resolutions, or similar items.

(3) Legislative body. ''Legislative body'' does not include executive, judicial, or administrative bodies.

(4) Administrative bodies. ''Administrative bodies'' includes school boards, housing authorities, sewer and water districts, zoning boards, and other similar Federal, State, or local special purpose bodies, whether elective or appointive. Thus, for example, for purposes of section 4911, the term ''any attempt to influence any legislation'' does not include attempts to persuade an executive body or department to form, support the formation of, or to acquire property to be used for the formation or expansion of, a public park or equivalent preserves (such as public recreation areas, game, or forest preserves, and soil demonstration areas) established or to be established by act of Congress, by executive action in accordance with an act of Congress, or by a State, municipality or other governmental unit described in section 170(c)(1), as compared with attempts to persuade a legislative body, a member thereof, or other governmental official or employee, to promote the appropriation of funds for such an acquisition or other legislative authorization of such an acquisition. Therefore, for example, an organization would not be influencing legislation for purposes of section 4911, if it proposed to a Park Authority that it purchase a particular tract of land for a new park, even though such an attempt would necessarily require the Park Authority eventually to seek appropriations to support a new park. However, in such a case, the organization would be influencing legislation, for purposes of section 4911, if it provided the Park Authority with a proposed budget to be submitted to a legislative body, unless such submission is described by one of the exceptions set forth in paragraph (c) of this section.

26 CFR 56.4911-3 Expenditures for direct and/or grass roots lobbying communications.

(a) Definition of term ''expenditures for'' -- (1) In general. This 56.4911-3 contains allocation rules regarding what portion of a lobbying communication's costs is a direct lobbying expenditure, what portion is a grass roots expenditure and what portion is, in certain cases, a nonlobbying expenditure. Except as otherwise indicated in this paragraph (a), all costs of preparing a direct or grass roots lobbying communication are included as expenditures for direct or grass roots lobbying. Expenditures for a direct or grass roots lobbying communication (''lobbying expenditures'') include amounts paid or incurred as current or deferred compensation for an employee's services attributable to the direct or grass roots lobbying communication, and the allocable portion of administrative, overhead, and other general expenditures attributable to the direct or grass roots lobbying communication. For example, except as otherwise provided in this paragraph (a), all expenditures for researching, drafting, reviewing, copying, publishing and mailing a direct or grass roots lobbying communication, as well as an allocable share of overhead expenses, are included as expenditures for direct or grass roots lobbying.

(2) Allocation of mixed purpose expenditures -- (i) Nonmembership communications. Except as provided in paragraph (a)(2)(ii) of this section, lobbying expenditures for a communication that also has a bona fide nonlobbying purpose must include all costs attributable to those parts of the communication that are on the same specific subject as the lobbying message. All costs attributable to those parts of the communication that are not on the same specific subject as the lobbying message are not included as lobbying expenditures for allocation purposes. Whether or not a portion of a communication is on the same specific subject as the lobbying message will depend on the surrounding facts and circumstances. In general, a portion of a communication will be on the same specific subject as the lobbying message if that portion discusses an activity or specific issue that would be directly affected by the specific legislation that is the subject of the lobbying message. Moreover, discussion of the background or consequences of the specific legislation, or discussion of the background or consequences of an activity or specific issue affected by the specific legislation, is also considered to be on the same specific subject as the lobbying communication.

(ii) Membership communications. In the case of lobbying expenditures for a communication that also has a bona fide nonlobbying purpose and that is sent only or primarily to members, an electing public charity must make a reasonable allocation between the amount expended for the lobbying purpose and the amount expended for the nonlobbying purpose. An electing public charity that includes as a lobbying expenditure only the amount expended for the specific sentence or sentences that encourage the recipient to take action with respect to legislation has not made a reasonable allocation. For purposes of this paragraph, a communication is sent only or primarily to members if more than half of the recipients of the communication are members of the electing public charity making the communication within the meaning of 56.4911-5. See 56.4911-5 for separate rules on communications sent only or primarily to members. Nothing in this paragraph (a) shall change any allocation required by 56.4911-5.

(3) Allocation of mixed lobbying. If a communication (to which 56.4911-5 does not apply) is both a direct lobbying communication and a grass roots lobbying communication, the communication will be treated as a grass roots lobbying communication except to the extent that the electing public charity demonstrates that the communication was made primarily for direct lobbying purposes, in which case a reasonable allocation shall be made between the direct and the grass roots lobbying purposes served by the communication.

(b) Examples. The provisions of paragraph (a) of this section are illustrated by the following examples. Except where otherwise explicitly stated, the expenditure test election under section 501(h) is assumed to be in effect for all organizations discussed in the examples in this paragraph (b). See 56.4911-5 for special rules applying to the member communications described in some of the following examples.

Example (1). Organization R makes the services of E, one of its paid executives, available to S, an organization described in section 501(c)(4) of the Code. E works for several weeks to assist S in developing materials that urge voters to contact their congressional representatives to indicate their support for specific legislation. In performing this work, E uses office space and clerical assistance provided by R. R pays full salary and benefits to E during this period and receives no reimbursement from S for these payments or for the other facilities and assistance provided. All expenditures of R, including allocable office and overhead expenses, that are attributable to this assignment are grass roots expenditures because E was engaged in an attempt to influence legislation.

Example (2). An organization distributes primarily to nonmembers a pamphlet with two articles on unrelated subjects. The total cost of preparing, printing and mailing the pamphlet is $11,000, $1,000 for preparation and $10,000 for printing and mailing. The cost of preparing one article, a nonlobbying communication, is $600. The article is printed on three of the four pages in the pamphlet. The cost of preparing the second article, a grassroots lobbying communication that addresses only one specific subject, is $400. This article is printed on one page of the four page pamphlet. In this situation, $400 of preparation costs and $2,500 (25% of $10,000) of printing and mailing costs are expenditures for a grass roots lobbying communication.

Example (3). Assume the same facts as in Example (2), except that the pamphlet is distributed only to members. In addition, assume the second article states that the recipient members should contact their congressional representatives. The organization allocates $400 of preparation costs and $2,500 of printing and mailing costs as expenditures for direct lobbying (see 56.4911-5(c)). The allocation is reasonable for purposes of 56.4911-3(a)(2)(ii).

Example (4). Organization J places a full-page advertisement in a newspaper. The advertisement urges passage of pending legislation to build three additional nuclear powered submarines, and states that readers should write their Congressional representatives in favor of the legislation. The advertisement also provides a general description of J's purposes and activities, invites readers to become members of J and asks readers to contribute money to J. Except for the cost of the portion of the advertisement describing J's purposes and activities and the portion specifically seeking members and contributions, the entire cost of the advertisement is an expenditure for a grass roots lobbying communication, because the entire advertisement, except for the lines specifically describing J and specifically seeking members and contributions, is on the same specific subject as the grass roots lobbying message.

Example (5). Assume the same facts as in Example (4), except that J places in the newspaper two separate half-page advertisements instead of one full-page advertisement. One of the two advertisements discusses the need for three additional nuclear powered submarines and urges readers to write their Congressional representatives in favor of the pending legislation to build the three submarines. The other advertisement contains only the membership and fundraising appeals, along with a general description of J's purposes and activities. The half-page advertisement urging readers to write to Congress is a grass roots lobbying communication and all of J's expenditures for producing and placing that advertisement are expenditures for a grass roots lobbying communication. J's expenditures for the other half-page advertisement are not expenditures for a grass roots or direct lobbying communication.

Example (6). Assume the same facts as in Example (4), except that the communication by J is in a letter mailed only to members of J, rather than in newspaper advertisement, and the invitation to become a member of J is an invitation to join a new membership category. In addition, assume that the communication states that the member recipients should ask nonmembers to write their Congressional representatives. J allocates one-half of the cost of the mailing as an expenditure for a grass roots lobbying communication (see 56.4911-5(d)). Because the communication had both bona fide nonlobbying (e.g., membership solicitation and fundraising) purposes as well as lobbying purposes, J's allocation of one-half of the cost of the communication to grass roots lobbying and one-half to nonlobbying is reasonable for purposes of 56.4911-3(a)(2)(ii).

Example (7). A particular monthly issue of organization X's newsletter, which is distributed mainly to nonmembers of X, has three articles of equal length. The first article is a grass roots lobbying communication, the sole specific subject of which is pending legislation to help protect seals from being slaughtered in certain foreign countries. The second article discusses the rapid decline in the world's whale population, particularly because of the illegal hunting of whales by foreign countries. The third article deals with air pollution and the acid rain problem in North America. Because the first article is a grass roots lobbying communication, all of the costs allocable to that article (e.g., one-third of the newsletter's printing and mailing costs) are lobbying expenditures. The second article is not a lobbying communication and the pending legislation relating to seals addressed in the first article does not affect the illegal whale hunting activities. Because the second and third articles are not lobbying communications and are also not on the same specific subject as the first article, no portion of the costs attributable to those articles is a grass roots lobbying expenditure.

Example (8). Organization T, a nonmembership organization, prepares a three page document that is mailed to 3,000 persons on T's mailing list. The first two pages of the three page document, titled ''The Need for Child Care,'' support the need for additional child care programs, and include statistics on the number of children living in homes where both parents work or in homes with a single parent. The two pages also make note of the inadequacy of the number of day care providers to meet the needs of these parents. The third page of the document, titled ''H.R. 1,'' indicates T's support of H.R. 1, a bill pending in the U.S. House of Representatives. The document states that H.R. 1 will provide for $10,000,000 in additional subsidies to child care providers, primarily for those providers caring for lower income children. The third page of the document also notes that H.R. 1 includes new federal standards regulating the quality of child care providers. The document ends with T's request that recipients contact their congressional representative in support of H.R. 1. The entire three page document is on the same specific subject, and, therefore, all expenditures of preparing and distributing the three page document are grass roots lobbying expenditures.

Example (9). Assume the same facts as in Example (8), except that the document has a fourth page. The fourth page does not refer to the general need for child care or the specific need for additional child care providers. Instead, the fourth page advocates that a particular federal agency commence, under its existing statutory authority, licensing of day care providers in order to promote safe and effective child care. The cost of the fourth page is not a lobbying expenditure.

Example (10). Assume the same facts as in Example (8), except that T is a membership organization, 75 percent of the recipients of the three page document are members of T, and 25 percent of the recipients are nonmembers and are not subscribers within the meaning of 56.4911-5(f)(5). Assume also that the document states that readers should write to Congress, but does not state that the readers should urge nonmembers to write to Congress. T treats the document as having a bona fide nonlobbying purpose, the purpose of educating its members about the need for child care. Accordingly, T allocates one-half of the cost of preparing and distributing the document as a lobbying expenditure (see 56.4911-5(e)(2)(i)), of which 75 percent is a direct lobbying expenditure (see 56.4911-5(e)(2)(iii)) and 25 percent is a grass roots lobbying expenditure (see 56.4911-5(e)(2)(ii)). The remaining one-half is allocated as a nonlobbying expenditure. T's allocation is reasonable for purposes of 56.4911-3(a)(2)(ii) and is correct for purposes of 56.4911-5(e).

Example (11). Assume the same facts as in Example (10), except that T allocates one percent of the cost of preparing and distributing the document as a lobbying expenditure (for purposes of 56.4911-5(e)(2)) and 99 percent as a nonlobbying expenditure. T's allocation is based upon the fact that out of 200 lines in the document, only two lines state that the recipient should contact legislators about the pending legislation. T's allocation is unreasonable for purposes of 56.4911-3(a)(2)(ii).

Example (12). Organization F, a nonmembership organization, sends a one page letter to all persons on its mailing list. The only subject of the letter is the organization's opposition to a pending bill allowing private uses of certain national parks. The letter requests recipients to send letters opposing the bill to their congressional representatives. A second one page letter is sent in the same envelope. The second letter discusses the broad educational activities and publications of the organization in all areas of environmental protection and ends by requesting the recipient to make a financial contribution to organization F. Since the separate second letter is on a different subject from the lobbying letter, and the letters are of equal length, 50 percent of the mailing costs must be allocated as an expenditure for a grass roots lobbying communication.

Example (13). Assume the same facts as in Example (12), except that F is a membership organization and the letters in question are sent primarily (90 percent) to members. The other 10 percent of the recipients are nonmembers and are not subscribers within the meaning of 56.4911-5(f)(5). Assume also that the first letter does not state that readers should urge nonmembers to write to legislators. F allocates one-half of the mailing costs as a lobbying expenditure, of which 90 percent is a direct lobbying expenditure and 10 percent is a grass roots lobbying expenditure (see 56.4911-5(e)(2)). F's allocation is reasonable for purposes of 56.4911-3(a)(2)(ii) and is correct for purposes of 56.4911-5.

(c) Certain transfers treated as lobbying expenditures -- (1) Transfer earmarked for grass roots purposes. A transfer is a grass roots expenditure to the extent that it is earmarked (as defined in 56.4911-4(f)(4)) for grass roots lobbying purposes and is not described in 56.4911-4(e).

(2) Transfer earmarked for direct and grass roots lobbying. A transfer that is earmarked for direct lobbying purposes or for direct lobbying and grass roots lobbying purposes is treated as a grass roots expenditure in full except to the extent the transferor demonstrates that all or part of the amounts transferred were expended for direct lobbying purposes, in which case that part of the amounts transferred is a direct lobbying expenditure by the transferor. This paragraph (c)(2) shall not apply to any expenditure described in 56.4911-4(e).

(3) Certain transfers to noncharities that lobby -- (i) Limited application of paragraph (c)(3) -- (A) In general. This paragraph (c)(3) applies only to transfers for less than fair market value from an electing public charity to any noncharity that makes lobbying expenditures. A noncharity is any entity that is not described in section 501(c)(3). In order for this paragraph to apply, the electing public charity must transfer to a noncharity more in value than it receives in return. For example, this paragraph does not apply to an electing public charity's fair market value payment of rent to a landlord. However, this paragraph does apply where an electing public charity and a noncharity share office space and the electing public charity pays more than fair market value rent to the noncharity. Similarly, this paragraph applies where an electing public charity sells goods or services to a noncharity for less than fair market value. See paragraphs (c)(3)(i) (B), (C) and (D) of this section for exceptions where non-fair market value transfers are not covered by this paragraph (c)(3). See paragraph (c)(3)(i)(E) of this section to determine the amount of any non-fair market value transfer covered by this paragraph (c)(3). See paragraph (c)(3)(ii) of this section for the rules that apply to transfers governed by this paragraph (c)(3).

(B) Exception for controlled grants. Notwithstanding paragraph (c)(3)(i)(A) of this section, this paragraph (c)(3) does not apply where an electing public charity makes a grant to a noncharity that is a controlled grant (as defined in 56.4911-4(f)(3)).

(C) Exception for transfers that artificially inflate exempt purpose expenditures. Notwithstanding paragraph (c)(3)(i)(A) of this section, this paragraph (c)(3) does not apply where an electing public charity makes a grant to a noncharity that is an expenditure described in 56.4911-4(e) (relating to grants that artificially inflate exempt purpose expenditures).

(D) Exception for substantially related activity. Notwithstanding paragraph (c)(3)(i)(A) of this section, this paragraph (c)(3) does not apply where an electing public charity, in the course of an activity that is substantially related to the accomplishment of the electing public charity's exempt purposes, makes goods or services widely available for less than fair market value to individual members of the general public and those goods or services are actually purchased (or consumed for no charge) by a substantial number of wholly unrelated individual members of the general public for less than fair market value. For purposes of the preceding sentence, the term ''individual member of the general public'' does not include any person or entity directly or indirectly affiliated with the electing public charity in question. The following example illustrates this paragraph (c)(3)(i)(D):

Example. Organization P is an educational organization dedicated to preserving the environment. One of P's activities is educating the public about the benefits of installing cost-effective passive solar energy systems, thereby helping to preserve the environment. P charges for its extensive literature and advice, but the charges are less than the fair market value of the literature and advice. P makes its literature and advice widely available to individual members of the general public by advertising in various media and by pamphlets distributed in various areas. P annually provides its literature and advice for less than fair market value to 500 wholly unrelated families, businesses, and tax-exempt organizations. Several of the businesses and tax-exempt organizations make lobbying expenditures within the meaning of section 4911. P's provision of its goods and services to these entities is not covered by this paragraph (c)(3) (and thus does not give rise to a lobbying expenditure by P under paragraph (c)(3)(ii)).

(E) Determination of amount of transfer governed by paragraph (c)(3). Where an electing public charity receives nothing of value in return for its transfer, the amount of the transfer governed by this paragraph (c)(3) is the greater of the fair market value or the cost of the goods or services transferred to the noncharity. Where the noncharity transfers something of value to the electing public charity in return for the charity's transfer, but that payment is less than the fair market value of the charity's transfer to the noncharity, the amount of the transfer governed by this paragraph (c)(3) is the excess of: first, the greater of the fair market value or cost of the goods or services transferred to the noncharity over, second, the value of the amount transferred to the charity. For example, if an electing public charity transfers $10,000 of goods and services to a noncharity that makes lobbying expenditures in return for payment by the noncharity of $2,000, the amount of the transfer governed by this paragraph (c)(3) is $8,000.

(ii) Rules governing transfers to which paragraph (c)(3) applies. A transfer to which this paragraph (c)(3) applies is treated in whole or in part as a grass roots and/or direct lobbying expenditure by the transferor in accordance with paragraphs (c)(3)(ii) (A), (B) and (C) of this section. In applying those paragraphs, the expenditures of the transferee will be determined as if the regulations under section 4911 applied to the transferee. This paragraph (c)(3) discusses only when certain transfers are lobbying expenditures by the transferor. This paragraph does not address other issues that may arise when an electing public charity makes a noncontrolled grant to a noncharity. Nothing in this paragraph (c)(3) shall be used to interpret issues relating to noncontrolled grants by charities to noncharities, such as whether the noncontrolled grant is consistent with the continued tax-exempt status of the electing public charity.

(A) Transfers treated as grass roots expenditures. The transfer is treated as a grass roots expenditure to the extent of the lesser of two amounts: The amount of the transfer and the amount of the transferee's grass roots expenditures.

(B) Transfers treated as direct lobbying expenditures. If the transfer is greater than the transferee's grass roots expenditures, the excess is treated as a direct lobbying expenditure, but only to the extent of the transferee's direct lobbying expenditures. (If, however, the transfer is less than the transferee's grass roots expenditures, none of the transfer is a direct lobbying expenditure.)

(C) Transfers treated as nonlobbying. If the transfer is greater than the sum of the transferee's grass roots and direct lobbying expenditures, the excess of the transfer over those lobbying expenses is not a lobbying expenditure.

(iii) Example. The following example illustrates the application of this paragraph (c)(3):

Example. Organization C, an electing public charity, shares employee E with N, a noncharity that makes lobbying expenditures. N's grass roots expenditures are $5,000 and its direct lobbying expenditures are $25,000. Each organization pays one-half of the $100,000 in direct and overhead costs associated with E. E devotes one-quarter of his time to C and three-quarters of his time to N. In substance, this arrangement is a transfer (for less than fair market value) from C to N in the amount of $25,000 (one-quarter of the $100,000 of direct and overhead costs associated with E's work). Accordingly, C is treated as having made a $5,000 grass roots expenditure (the lesser of N's grass roots expenditures ($5,000) or the amount of the transfer ($25,000)). C is also treated as having made a $20,000 direct lobbying expenditure (the lesser of N's direct lobbying expenditures ($25,000) or the remaining amount of the transfer ($20,000)).

26 CFR 56.4911-4 Exempt purpose expenditures.

(a) Application. This section provides rules under section 4911(e) for determining an electing public charity's ''exempt purpose expenditures'' for a taxable year for purposes of section 4911(c)(2) and 56.4911-1(c)(2). Those two sections generally define an electing public charity's lobbying limit (lobbying nontaxable amount) as a sliding scale percentage of the organization's exempt purpose expenditures. In determining an electing public charity's exempt purpose expenditures, no expenditure shall be counted twice by an organization.

(b) Included expenditures. Amounts paid or incurred by an organization that are exempt purpose expenditures include --

(1) Amounts paid or incurred to accomplish a purpose enumerated in section 170(c)(2)(B), including (but not limited to) the amount of any transfer made by the organization (other than a transfer described in paragraph (e) of this section) to another organization to accomplish the transferor's exempt purposes, and including amounts expended by an organization out of transfers (other than a transfer described in paragraph (e) of this section) for which the organization is the transferee,

(2) Amounts paid or incurred as current or deferred compensation for an employee's services for a purpose enumerated in section 170(c)(2)(B),

(3) The allocable portion of administrative overhead, and other general expenditures attributable to the accomplishment of a purpose enumerated in section 170(c)(2)(B),

(4) Lobbying expenditures (as defined in 56.4911-2(a)) whether or not for a purpose enumerated in section 170(c)(2)(B),

(5) Amounts paid or incurred for activities described in 56.4911-2(c),

(6) Amounts paid or incurred for activities described in 56.4811-5 that are not lobbying expenditures,

(7) A reasonable allowance for exhaustion, wear and tear, obsolescence or amortization, of assets to the extent used for one or more of the purposes described in paragraphs (b)(1) through (6) of this section, computed on a straight-line basis (for this purpose, an allowance for depreciation will be treated as reasonable if based on a useful life that would satisfy section 321(k)(3)(A) as in effect on January 1, 1985), and

(8) Fundraising expenditures (but see section 4911(e)(1)(C) and paragraphs (c)(3) and (4) of this section.)

(c) Excluded expenditures. Notwithstanding paragraph (b) of this section, exempt purpose expenditures do not include --

(1) Amounts paid or incurred that are neither expenditures to accomplish a purpose enumerated in section 170(c)(2)(B), lobbying expenditures (as defined in 56.4911-2(a)), nor expenditures described in paragraph (b)(5), (6) or (8) of this section,

(2) The amounts of any transfer described in paragraph (e) of this section,

(3) Amounts paid to or incurred for a separate fundraising unit (as defined in paragraph (f)(2) of this section) of an organization or of an affiliated organization (see 56.4911-7(a)),

(4) Amounts paid to or incurred for any person not an employee, or any organization not an affiliated organization, if paid or incurred primarily for fundraising, but only if such person or organization engages in fundraising, fundraising counselling or the provision of similar advice or services,

(5) Amounts paid or incurred that are properly chargeable to a capital account, determined in accordance with the principles that apply under section 263 or, as applicable, section 263A, with respect to an unrelated trade or business,

(6) Amounts paid or incurred for a tax that is not imposed in connection with the organization's efforts to accomplish a purpose described in section 170(c)(2)(B), such as taxes imposed under sections 511(a)(1) and 4911(a), and

(7) Amounts paid or incurred for the production of income. For purposes of this section, amounts are paid or incurred for the production of income if they are paid or incurred for a purpose or activity that is not substantially related (aside from the need of the organization for income or funds or the use it makes of the profits derived) to the exercise or performance by the organization of its charitable, educational or other purpose or function constituting the basis for its exemption under section 501. For example, the costs of managing an endowment are amounts that are paid or incurred for the production of income and are thus not exempt purpose expenditures. Fundraising expenditures are not, for purposes of this section, amounts that are paid or incurred for the production of income. Instead, the determination of whether fundraising costs are exempt purpose expenditures must be made with reference to section 4911(e)(1)(C) and paragraphs (b)(8), (c)(3) and (c)(4) of this section.

(d) Certain transfers treated as exempt purpose expenditures -- (1) An organization's transfer will be treated as an exempt purpose expenditure under paragraph (b)(1) of this section if it is --

(i) Described in either paragraph (d)(2) or (d)(3) of this section, and

(ii) Not described in paragraph (e) of this section.

(2) A transfer is described in this paragraph (d)(2) if it is made to an organization described in section 501(c)(3) in furtherance of the transferor's exempt purposes and is not earmarked for any purpose other than a purpose described in section 170(c)(2)(B). Thus, a payment of dues by a local or state organization to, respectively, a state or national organization that is described in section 501(c)(3) is considered an exempt purpose expenditure of the transferor to the extent it is not otherwise earmarked.

(3) A transfer is described in this paragraph (d)(3) if it is a controlled grant (as defined in paragraph (f)(3) of this section), but only to the extent of the amounts that are paid or incurred by the transferee that would be exempt purpose expenditures if paid or incurred by the transferor.

(e) Transfers not exempt purpose expenditures -- (1) An organization's transfer is described in this paragraph (e) if it is described in one of paragraphs (e)(2) through (e)(4).

(2) A transfer is described in this paragraph (e)(2) if it is made to a member of any affiliated group (as defined in 56.4911-7(e)) of which the transferor is a member.

(3) A transfer is described in this paragraph (e)(3) if the Commissioner determines that the transfer artificially inflates the amount of the transferor's or transferee's exempt purpose expenditures. In general, the Commissioner will make that determination if a substantial purpose of a transfer is to inflate those exempt purpose expenditures. A transfer described in this paragraph will not be considered an exempt purpose expenditure of the transferor, but will be an exempt purpose expenditure of the transferee to the extent that the transferee expends the transfer in the active conduct of its charitable activities or attempts to influence legislation. Standards similar to those found in 53.4942(b)-1(b) may be applied in determining whether the transferee has expended amounts in the ''active conduct'' of its charitable activities or attempts to influence legislation.

(4) A transfer is described in this paragraph (e)(4) if it is not a controlled grant and is made to an organization not described in section 501(c)(3) that does not attempt to influence legislation.

(f) Definitions -- (1) For purposes of paragraph (c) of this section, ''fundraising'' includes --

(i) Soliciting dues or contributions from members of the organization, from persons whose dues are in arrears, or from the general public,

(ii) Soliciting grants from businesses or other organizations, including organizations described in section 501(c)(3), or

(iii) Soliciting grants from a governmental unit referred to in section 170(c)(1), or any agency or instrumentality thereof.

(2) For purposes of paragraph (c) of this section, a separate fundraising unit of any organization must consist of either two or more individuals a majority of whose time is spent on fundraising for the organization, or any separate accounting unit of the organization that is devoted to fundraising. For purposes of paragraph (c) of this section, amounts paid to or incurred for a separate fundraising unit include all amounts incurred for the creation, production, copying, and distribution of the fundraising portion of a separate fundraising unit's communication. (For example, an electing public charity that has a separate fundraising unit may not count the cost of postage for a separate fundraising unit's communication as an exempt purpose expenditure even though, under the electing public charity's accounting system, that cost is attributable to the mailroom rather than to the separate fundraising unit.)

(3) For purposes of this section, a ''controlled grant'' is a grant made by an eligible organization described in 1.501(h)-2(b) to an organization not described in section 501(c)(3) that meets the following requirements:

(i) The donor limits the grant to a specific project of the recipient that is in furtherance of the donor's (nonlobbying) exempt purposes; and

(ii) The donor maintains records to establish that the grant is used in furtherance of the donor's (nonlobbying) exempt purposes.

(4) A transfer, including a grant or payment of dues, is ''earmarked'' for a specific purpose --

(i) To the extent that the transferor directs the transferee to add the amount transferred to a fund established to accomplish the purpose, or

(ii) To the extent of the amount transferred or, if less, the amount agreed upon to the expended to accomplish the purpose, if there exists an agreement, oral or written, whereby the transferor may cause the transferee to expend amounts to accomplish the purpose or whereby the transferee agrees to expend an amount to accomplish the purpose.

(g) Example. The provisions of this section are illustrated by the following example:

Example. Organization X is an exempt organization described in section 501(c)(3) that is organized for the purpose of rehabilitating alcoholics. X elected to be subject to the provisions of section 501(h) in 1981. For 1981, X had the following expenditures that are included in its exempt purpose expenditures to the extent indicated.

TABLE/GRAPH OMITTED

Note: For 1981, X's exempt purpose expenditures total $320,000. The $35,000 paid by X to Z for fundraising is not included in the exempt purpose expenditures total. All lobbying expenses are included in full. Only depreciation computed on a straight-line basis is included in exempt purpose expenditures.

26 CFR 56.4911-5 Communications with members.

(a) In general. For purposes of section 4911, expenditures for certain communications between an organization and its members (''membership communications'') are treated more leniently than are communications to nonmembers. This 56.4911-5 contains rules about the more lenient treatment. In certain cases, this section provides that expenditures for a membership communication are not lobbying expenditures even though those expenditures would be lobbying expenditures if the communication were to nonmembers. In other cases, this section provides that expenditures for a membership communication are direct lobbying expenditures even though those expenditures would be grass roots expenditures if the communication were to nonmembers. Paragraphs (b), (c) and (d) of this section set forth the more lenient rules that apply for communications that are directed only to members. Paragraph (e) of this section sets forth the more lenient rules that apply for communications that are directed primarily, but not solely, to members. Paragraph (f) of this section sets forth certain definitions and special rules.

(b) Communications (directed only to members) that are not lobbying communications. Expenditures for a communication that refers to, and reflects a view on, specific legislation are not lobbying expenditures if the communication satisfies the following requirements:

(1) The communication is directed only to members of the organization;

(2) The specific legislation the communication refers to, and reflects a view on, is of direct interest to the organization and its members;

(3) The communication does not directly encourage the member to engage in direct lobbying (whether individually or through the organization); and

(4) The communication does not directly encourage the member to engage in grass roots lobbying (whether individually or through the organization).

(c) Communications (directed only to members) that are direct lobbying communications. Expenditures for a communication that refers to, and reflects a view on, specific legislation and that satisfies the requirements of paragraphs (b)(1), (b)(2), and (b)(4) of this section, but does not satisfy the requirements of paragraph (b)(3) of this section, are treated as expenditures for direct lobbying.

(d) Communications (directed only to members) that are grass roots lobbying communications. Expenditures for a communication that refers to, and reflects a view on, specific legislation and that satisfies the requirements of paragraphs (b)(1) and (b)(2) of this section, but does not satisfy the requirements of paragraph (b)(4) of this section, are treated as grass roots expenditures (whether or not the communication satisfies the requirements of paragraph (b)(3) of this section).

(e) Written communications directed to members and nonmembers -- (1) In general. Expenditures for any written communication that is designed primarily for members of an organization (but not directed only to members) and that refers to, and reflects a view on, specific legislation of direct interest to the organization and its members, are treated as expenditures for direct or grass roots lobbying in accordance with paragraph (e)(2), (e)(3) or (e)(4) of this section. For purposes of this section, a communication is designed primarily for members of an organization if more than half of the recipients of the communication are members of the organization.

(2) Direct lobbying directly encouraged -- (i) Lobbying expenditure amount. If a written communication described in paragraph (e)(1) of this section directly encourages readers to engage individually or through the organization in direct lobbying but does not directly encourage them to engage in grass roots lobbying, the cost of the communication is allocated between expenditures for direct lobbying and grass roots expenditures in accordance with paragraphs (e)(2) (ii) and (iii) of this section. The portion of the cost to be allocated includes all costs of preparing all the material with respect to which readers are urged to engage in direct lobbying plus the mechanical and distribution costs attributable to the lineage devoted to this material (see 1.512(a)-1(f)(6)).

(ii) Grass roots amount. The amount allocable as a grass roots expenditure for a communication described in paragraph (e)(1) of this section is the amount calculated in paragraph (e)(2)(i) of this section multiplied by the sum of the nonmember subscribers percentage and all the other distribution percentage, both as defined in paragraph (f)(7) of this section. Solely for purposes of the allocation described in this paragraph (e)(2)(ii), the nonmember subscribers percentage is treated as zero unless it is greater than 15% of total distribution.

(iii) Direct lobbying amount. The amount allocable as an expenditure for direct lobbying for a communication described in paragraph (e)(1) of this section is the excess of the amount described in paragraph (e)(2)(i) of this section over the amount described in paragraph (e)(2)(ii) of this section.

(3) Grass roots expenditure if grass roots lobbying directly encouraged. If a written communication described in paragraph (e)(1) of this section directly encourages readers to engage individually or collectively (whether through the organization or otherwise) in grass roots lobbying (whether or not it also encourages readers to engage in direct lobbying), the grass roots expenditure includes all the costs of preparing all the material with respect to which readers are urged to engage in grass roots lobbying plus the mechanical and distribution costs attributable to the lineage devoted to this material (see 1.512(a)-1(f)(6)).

(4) No direct encouragement of direct lobbying or of grass roots lobbying. If a written communication described in paragraph (e)(1) of this section does not directly encourage readers to engage in either direct lobbying or grass roots lobbying, expenditures for the communication are not lobbying expenditures.

(f) Definitions and special rules. For purposes of the regulations under section 4911 --

(1) Member; general rule. A person is a member of an electing public charity if the person --

(i) Pays dues or makes a contribution of more than a nominal amount,

(ii) Makes a contribution of more than a nominal amount of time, or

(iii) Is one of a limited number of ''honorary'' or ''life'' members who have more than a nominal connection with the electing public charity and who have been chosen for a valid reason (such as length of service to the organization or involvement in activities forming the basis of the electing public charity's exemption) unrelated to the electing public charity's dissemination of information to its members.

(2) Member; special rule. A person not a member of an electing public charity within the meaning of paragraph (f)(1) of this section may be treated as a member if the electing public charity demonstrates to the satisfaction of the Internal Revenue Service that there is a good reason for its membership requirements not meeting the requirements of such paragraph (f)(1), and that its membership requirements do not operate to permit an abuse of the rules described in this section.

(3) Member; affiliated group of organizations. For purposes of this section, a person who is a member of an organization that is a member of an affiliated group of organizations (within the meaning of 56.4911-7(e)) is treated as a member of each organization in the affiliated group.

(4) Member; limited afffiliated group of organizations. For purposes of this section, a person who is a member of an organization that is a member of a limited affiliated group of organizations (within the meaning of 56.4911-10(b)) is treated as a member of each organization in the limited affiliated group, but only to the extent that the communication relates to a national legislative issue (within the meaning of 56.4911-10(g)).

(5) Subscriber. A person is a subscriber to a written communication if --

(i) The person is a member of the publishing organization and the membership dues expressly include the right to receive the written communication, or

(ii) The person has affirmatively expressed a desire to receive the written communication and has paid more than a nominal amount of the communication.

(6) Directly encourages -- (i) Direct lobbying -- (A) In general. For purposes of this section, a communication directly encourages a recipient to engage in direct lobbying, whether individually or through the organization, if the communication:

(1) States that the recipient should contact a legislator or an employee of a legislative body, or should contact any other government official or employee who may participate in the formulation of legislation (but only if the principal purpose of urging contact with the government official or employee is to influence legislation);

(2) States the address, telephone number, or similar information of a legislator or an employee of a legislative body; or

(3) Provides a petition, tear-off postcard or similar material for the recipient to communicate his or her views to a legislator or an employee of a legislative body, or to any other government official or employee who may participate in the formulation of legislation (but only if the principal purpose of so facilitating contact with the government official or employee is to influence legislation).

(B) ''Self-defense'' exception for communications with members. Notwithstanding the provisions of paragraph (f)(6)(i)(A) of this section, for purposes of paragraphs (b)(3), (e)(2)(i), (e)(3) and (e)(4) of this section, a communication that directly encourages a member to engage in direct lobbying activities that are described in section 4911(d)(2)(C) and that would not be attempts to influence legislation if engaged in directly by the organization is treated as a communication that does not directly encourage a member to engage in direct lobbying.

(ii) Grass roots lobbying. For purposes of paragraphs (b)(4), (e)(3) and (e)(4) of this section, a communication directly encourages recipients to engage individually or collectively (whether through the organization or otherwise) in grass roots lobbying if the communication:

(A) States that the recipient should encourage any nonmember to contact a legislator or an employee of a legislative body, or to contact any other government official or employee who may participate in the formulation of legislation (but only if the principal purpose of urging contact with the government official or employee is to influence legislation);

(B) States that the recipient should provide to any nonmember the address, telephone number, or similar information of a legislator or an employee of a legislative body; or

(C) Provides (or requests that the recipient provide to nonmembers) a petition, tear-off postcard or similar material for the recipient (or nonmember) to use to ask any nonmember to communicate views to a legislator or an employee of a legislative body, or to any other government official or employee who may participate in the formulation of legislation, but only if the principal purpose of so facilitating contact with the government official or employee is to influence legislation. For purposes of this paragraph (f)(6)(ii)(C), a petition is provided for the recipient to use to ask any nonmember to communicate views if, for example, the petition has an entire page of preprinted signature blocks. Similarly, for purposes of this paragraph (f)(6)(ii)(C), where a communication is distributed to a single member and provides several tear-off postcards addressed to a legislator, the postcards are presumed to be provided for the member to use to ask a nonmember to communicate with the legislator.

(7) Percentages of total distribution. With respect to a communication described in paragraph (e)(1) of this section --

(i) ''Member percentage'' means the percentage of total distribution that represents distribution of a single copy to any member;

(ii) ''Nonmember subscribers percentage'' means the percentage of total distribution that represents distribution to nonmember subscribers (including libraries); and

(iii) ''All other distribution percentage'' means 100% reduced by the sum of the member percentage and the nonmember subscribers percentage.

(8) Reasonable allocation rule. In the case of lobbying expenditures for a communication that also has a bona fide nonlobbying purpose and that is sent only or primarily to members, an electing public charity must make a reasonable allocation between the amount expended for the lobbying purpose and the amount expended for the nonlobbying purpose. See 56.4911-3(a)(2)(ii).

26 CFR 56.4911-6 Records of lobbying and grass roots expenditures.

(a) Records of lobbying expenditures. An electing public charity must keep a record of its lobbying expenditures for the taxable year. Lobbying expenditures of which an organization must keep a record include the following:

(1) Expenditures for grass roots lobbying, as described in paragraph (b) of this section;

(2) Amounts directly paid or incurred for direct lobbying, including payments to another organization earmarked for direct lobbying, fees and expenses paid to individuals or organizations for direct lobbying, and printing, mailing, and other direct costs of reproducing and distributing materials used in direct lobbying;

(3) The portion of amounts paid or incurred as current or deferred compensation for an employee's services for direct lobbying;

(4) Amounts paid for out-of-pocket expenditures incurred on behalf of the organization and for direct lobbying, whether or not incurred by an employee;

(5) The allocable portion of administrative, overhead, and other general expenditures attributable to direct lobbying;

(6) Expenditures for publications or for communications with members to the extent the expenditures are treated as expenditures for direct lobbying under 56.4911-5; and

(7) Expenditures for direct lobbying of a controlled organization (within the meaning of 56.4911-10(c)) to the extent included by a controlling organization (within the meaning of 56.4911-10(c)) in its lobbying expenditures.

(b) Records of grass roots expenditures. An electing public charity must keep a record of its grass roots expenditures for the taxable year. Grass roots expenditures of which an organization must keep a record include the following:

(1) Amounts directly paid or incurred for grass roots lobbying, including payments to other organizations earmarked for grass roots lobbying, fees and expenses paid to individuals or organizations for grass roots lobbying, and the printing, mailing, and other direct costs of reproducing and distributing materials used in grass roots lobbying;

(2) The portion of amounts paid or incurred as current or deferred compensation for an employee's services for grass roots lobbying;

(3) Amounts paid for out-of-pocket expenditures incurred on behalf of the organization and for grass roots lobbying, whether or not incurred by an employee;

(4) The allocable portion of administrative, overhead and other general expenditures attributable to grass roots lobbying;

(5) Expenditures for publication or communications that are treated as expenditures for grass roots lobbying under 56.4911-5; and

(6) Expenditures for grass roots lobbying of a controlled organization (within the meaning of 56.4911-10(c)) to the extent included by a controlling organization (within the meaning of 56.4911-10(c)) in its grass roots expenditures.

26 CFR 56.4911-7 Affiliated group of organizations.

(a) Affiliation between two organizations. Sections 4911(f) (1) through (3) contain a limited anti-abuse rule for groups of affiliated organizations. In general, the rule operates to prevent numerous organizations from being created for the purpose of avoiding the sliding-scale percentage limitation on an electing public charity's lobbying expenditures (as well as avoiding the $1,000,000 cap on a single electing public charity's lobbying expenditures). This is generally accomplished by treating the members of an affiliated group as a single organization for purposes of measuring both lobbying expenditures and permitted lobbying expenditures. The anti-abuse rule is implemented by this 56.4911-7 and 56.4911-8 and 56.4911-9. This 56.4911-7 defines the term ''affiliated group of organizations'' and defines the taxable year of an affiliated group of organizations. Section 56.4911-8 provides rules concerning the exempt purpose expenditures, lobbying expenditures and grass roots expenditures of an affiliated group of organizations, as well as rules concerning the application of the excise tax imposed by section 4911(a) on excess lobbying expenditures by the group. Section 56.4911-9 provides rules concerning the application of the section 501(h) lobbying expenditure limits to members of an affiliated group of organizations. (For additional rules for members of a limited affiliated group of organizations (generally, organizations that are affiliated solely by reason of governing instrument provisions that extend control solely with respect to national legislation), see section 4911(f)(4) and 56.4911-10).

(1) In general. For purposes of the regulations under section 4911, two organizations are affiliated, subject to the limitation described in paragraph (a)(2) of this section, if one organization is able to control action on legislative issues by the other by reason of interlocking governing boards (see paragraph (b) of this section) or by reason of provisions of the governing instruments of the controlled organization (see paragraph (c) of this section). The ability of the controlling organization to control action on legislative issues by the controlled organization is sufficient to establish that the organizations are affiliated; it is not necessary that the control be exercised.

(2) Organizations not described in section 501(c)(3). Two organizations, neither of which is described in section 501(c)(3), are affiliated only if there exists at least one organization described in section 501(c)(3) that is affiliated with both organizations.

(3) Action on legislative issues. For purposes of this section, the term ''action on legislative issues'' includes taking a position in the organization's name on legislation, authorizing any person to take a position in the organization's name on legislation, or authorizing any lobbying expenditures. The phrase does not include actions taken merely to correct unauthorized actions taken in the organization's name.

(b) Interlocking governing boards -- (1) In general. Two organizations have interlocking governing boards if one organization (the controlling organization) has a sufficient number of representatives (within the meaning of paragraph (b)(5) of this section) on the governing board of the second organization (the controlled organization) so that by aggregating their votes, the representatives of the controlling organization can cause or prevent action on legislative issues by the controlled organization. If two organizations have interlocking governing boards, the organizations are affiliated without regard to how or whether the representatives of the controlling organization vote on any particular matter.

(2) Majority or quorum. Except as provided in paragraph (b) (3) or (4) of this section, the number of representatives of an organization (the controlling organization) who are members of the governing board of a second organization (the controlled organization) will be presumed sufficient to cause or prevent action on legislative issues by the controlled organization if that number either --

(i) Constitutes a majority of incumbents on the governing board, or

(ii) Constitutes a quorum, or is sufficient to prevent a quorum, for acting on legislative issues.

(3) Votes required under governing instrument or local law. Except as provided in paragraph (b)(4) of this section, if under the governing documents of an organization (the controlled organization), it can be determined that a lesser number of votes than the number described in paragraph (b)(2) of this section is necessary or sufficient to cause or to prevent action on legislative issues, the number of representatives of the controlling organization who are members of the governing board of the controlled organization will be considered sufficient to cause or prevent action on legislative issues if it equals or exceeds that number.

(4) Representatives constituting less than 15% of governing board. Notwithstanding paragraph (b) (2) or (3) of this section, if the number of representatives of one organization is less than 15 percent of the incumbents on the governing board of a second organization, the two organizations are not affiliated by reason of interlocking governing boards.

(5) Representatives. (i) This paragraph (b)(5) describes members of the governing board of one organization (the controlled organization) who are considered representatives of a second organization (the controlling organization). Under this paragraph (b)(5), a member of the governing board of a controlled organization may be a representative of more than one controlling organization. A person with no authority to vote on any issue being considered by the governing board is not a representative of any organization.

(ii) A board member of one organization (the controlled organization) is a representative of a second organization (the controlling organization) if the controlling organization has specifically designated that person to be a board member of the controlled organization. For purposes of this paragraph (b)(5)(ii) and paragraph (b)(5)(iii) of this section, a board member of the controlled organization is specifically designated by the controlling organization if the board member is selected by virtue of the right of the controlling organization, under the governing instruments of the controlled organization, either to designate a person to be a member of the controlled organization's governing board, or to select a person for a position that entitles the holder of that position to be a member of the controlled organization's governing board.

(iii) A board member of one organization who is specifically designated by a second organization, a majority of the governing board of which is made up of representatives of a third organization, is a representative of the third organization as well as being a representative of the second organization pursuant to paragraph (b)(5)(ii) of this section.

(iv) A board member of one organization who is also a member of the governing board of a second organization is a representative of the second organization.

(v) A board member of one organization who is an officer or paid executive staff member of a second organization is a representative of the second organization. Although titles are significant in determining whether a person is a member of the executive staff of an organization, any employee of an organization who possesses authority commonly exercised by an executive is considered an executive staff member for purposes of this paragraph (b)(5)(v).

(c) Governing instrument. One organization (the ''controlling'' organization) is affiliated with a second organization (the ''controlled'' organization) by reason of the governing instruments of the contolled organization if the governing instruments of the controlled organization limit the independent action of the controlled organization on legislative issues by requiring it to be bound by decisions of the other organization on legislative issues.

(d) Three or more organizations affiliated -- (1) Two controlled organizations affiliated. If a controlling organization described in this section is affiliated with each of two or more controlled organizations described in this section, then the controlled organizations are affiliated with each other.

(2) Chain rule. If one organization is a controlling organization described in this section with respect to a second organization and that second organization is a controlling organization with respect to a third organization, then the first organization is affiliated with the third.

(e) Affiliated group of organizations -- (1) Defined. For purposes of the regulations under section 4911, an affiliated group of organizations is a group of organizations --

(i) Each of which is affiliated with every other member for at least thirty days of the taxable year of the affiliated group (determined without regard to the election provided for in paragraph (e)(5) of this section),

(ii) Each of which is an eligible organization (within the meaning of 1.501(h)-2(b)(1)), and

(iii) At least one of which is an electing member organization (within the meaning of paragraph (e)(4) of this section).

Each organization in a group of organizations that satisfies the requirements of the preceding sentence is a member of the affiliated group of organizations for the taxable year of the affiliated group.

(2) Multiple membership. For any taxable year of an organization, it may be a member of two or more affiliated groups of organizations.

(3) Taxable year of affiliated group. If all members of an affiliated group have the same taxable year, that taxable year is the taxable year of the affiliated group. If the members of an affiliated group do not all have the same taxable year, the taxable year of the affiliated group is the calendar year, unless the election under paragraph (e)(5) of this section is made.

(4) Electing member organization. For purposes of the regulations under section 4911, an ''electing member organization'' is an organization to which the expenditure test election under section 501(h) applies on at least one day of the taxable year of the affiliated group of which it is a member. For purposes of the preceding sentence (and notwithstanding 1.501(h)-2(a)), the expenditure test is not considered to apply to the organization on any day before the date on which it files the Form 5768 making the expenditure test election.

(5) Election of member's year as group's taxable year. The taxable year of an affiliated group may be determined according to the provisions of this paragraph (e)(5) if all of the members of the affiliated group so elect. Under this paragraph (e)(5), each member organization shall apply the provisions of section 501(h) and 4911, and the regulations thereunder (unless the regulations provide otherwise), by treating its own taxable year as the taxable year of the affiliated group. The election may be made by an electing member organization by attaching to its annual return a statement from itself and every other member of the affiliated group that contains: the organization's name, address, and employer identification number; and its signed consent to the election provided for in this paragraph (e)(5). The election must be made no later than the due date of the first annual return of any electing member for its taxable year for which the member is liable for tax under section 4911(a), determined under 56.4911-8(d). The election may not be made or revoked after the due date of the return referred to in the preceding sentence except upon such terms and conditions as the Commissioner may prescribe.

(f) Examples. The provisions of this section are illustrated by the following examples.

Example (1). M, N, and O are eligible organizations within the meaning of 1.501(h)-2(b)(1). Each has a governing board made up of nine members. Five members on the board of N are also members of the board of M. N designates five individuals from among its board, officers, and executive staff members to serve on the board of O. M is affiliated with N, N is affiliated with O, and M is affiliated with O.

Example (2). X, an eligible organization, has a board consisting of 10 members. Five unaffiliated tax-exempt organizations each designate two individuals to serve on the governing board of X. A simple majority of the board of X is a quorum and may establish X's position on legislative issues. X is not affiliated with any of the five autonomous organizations by reason of interlocking governing boards.

Example (3). P and Q are eligible organizations. The governing instruments of Q state that it will not take a position on legislation if P disapproves of the position. In addition, there is regular correspondence between P and Q with regard to positions on legislation. P is affiliated with Q regardless of whether P has ever vetoed a position taken by Q.

Example (4). The governing board of organization R resolves to adopt the position taken on legislative issues by organization S. R and S are eligible organizations and do not have interlocking governing boards. The governing instruments of R do not mention organization S and do not indicate that R is to be bound by the decisions of legislation of any organization. R and S are not affiliated.

Example (5). Organization Z is bound, under the terms of its governing instruments, by the legislative positions of Organization Y. Organization Y, however, is bound, under the terms of its governing instruments, by the legislative positions of Organization X. Organization X is affiliated with Y and Z; Y is affiliated with X and Z; and Z is affiliated with X and Y.

Example (6). Organizations T and U have interlocking boards of directors. T is the controlling organization. Organization V is bound, under the terms of its governing instruments, by the legislative positions of U. T and V are affiliated because T may cause or prevent action on legislative issues by U, and V is bound by U's action. If U were the controlling organization, T and V would be affiliated as two organizations controlled by the same organization.

Example (7). Organization A is described in section 501(c)(4). It is affiliated, as the controlling organization, with organizations K and L, both of which are described in section 501(c)(3) and are eligible to elect under section 501(h). If K elects under section 501(h), K and L are an affiliated group of organizations. Even though A is affiliated with K and L, A is not a member of that affiliated group of organizations because A is not an eligible organization within the meaning of 1.501(h)-2(b)(1) (see 56.4911-7(e)(1) for the definition of which affiliated organizations may be members of an affiliated group of organizations).

Example (8). G, H, I, and J are eligible organizations. G, H, and I have elected the expenditure test under section 501(h). The governing board of J has nine members. Under the governing instruments of J, organizations G, H, and I each designate three members of the governing board of J. Also under the governing instruments of J, action on legislative issues requires the approval of any seven board members. Because the three representatives of G may prevent action on legislative issues, J is affiliated with G. Similarly, J is affiliated with each of H and I. However, under none of the rules of affiliation is G affiliated with H, or H with I, or I with G. Therefore J is a member of one affiliated group comprising G and J, of another group comprising H and J, and of a third group comprising I and J.

Example (9). Organizations C, D, and E have been affiliated for many years and have all elected the expenditure test. Each has a taxable year ending July 31. For every day of the year ending July 31, 1992, they were eligible organizations, electing member organizations, and affiliated with each other. On no day of that year were they affiliated with any other eligible organization having a different taxable year. Therefore, the year ending July 31, 1992, is the taxable year of the affiliated group comprising C, D, and E.

26 CFR 56.4911-8 Excess lobbying expenditures of affiliated group.

(a) Application. This section provides rules concerning the exempt purpose expenditures, lobbying expenditures, and grass roots expenditures of an affiliated group of organizations, and the application of the excise tax imposed by section 4911(a) on the excess lobbying expenditures of the group.

(b) Affiliated group treated as one organization. Under section 4911(f), an affiliated group of organizations is treated as a single organization for purposes of the tax imposed by section 4911(a). For any taxable year of the affiliated group, the group's lobbying expenditures, grass roots expenditures, and exempt purpose expenditures are equal to the sum of the lobbying expenditures, grass roots expenditures, and exempt purpose expenditures, respectively, paid or incurred by each member during the taxable year of the affiliated group. The lobbying and grass roots nontaxable amounts for the affiliated group for a taxable year are determined under section 4911(c) (2) and (4) and 56.4911-1(c) and are based on the sum of the exempt purpose expenditures described in the preceding sentence. The lobbying and grass roots ceiling amounts for the affiliated group for a taxable year are calculated under 1.501(h)-3(c) (3) and (6) based upon the nontaxable amounts determined pursuant to the preceding sentence.

(c) Tax imposed on excess lobbying expenditures of affiliated group. The excise tax under section 4911(a) is imposed for a taxable year of an affiliated group if the group has excess lobbying expenditures. For any taxable year of an affiliated group, the group's excess lobbying expenditures are the greater of --

(1) The amount by which the group's lobbying expenditures exceed the group's lobbying nontaxable amount, or

(2) The amount by which the group's grass roots expenditures exceed the group's grass roots nontaxable amount.

(D) Liability for tax -- (1) Electing organizations. As provided in this paragraph (d), an electing member organization is liable for all or a portion of the excise tax imposed by section 4911(a) on the excess lobbying expenditures of an affiliated group of organizations. An organization that is liable under this paragraph (d) is not liable for any excise tax under section 4911 based on its own excess lobbying expenditures. A member of the affiliated group that is not an electing member organization is not liable for any portion of the excise tax that is imposed with respect to the affiliated group.

(2) Tax based on excess lobbying expenditures. If the excise tax imposed by section 4911(a) on the excess lobbying expenditures of an affiliated group of organizations is based upon the amount described in paragraph (c)(1) of this section, and at least one electing member has made lobbying expenditures, each electing member organization is liable for a portion of the tax equal to the amount of the tax multiplied by a fraction, the numerator of which is the electing member organization's lobbying expenditures paid or incurred during the taxable year of the affiliated group, and the denominator of which is the sum of the lobbying expenditures of all electing member organizations in the group paid or incurred during the taxable year of the affiliated group.

(3) Tax based on excess grass roots expenditures. If the excise tax imposed by section 4911(a) on the excess lobbying expenditures of an affiliated group of organizations is based upon the amount described in paragraph (c)(2) of this section, and at least one electing member has made grass roots expenditures, each electing member organization is liable for a portion of the tax equal to the amount of the tax multiplied by the fraction described in paragraph (d)(2) of this section, except that ''grass roots expenditures'' is substituted for ''lobbying expenditures.''

(4) Tax based on exempt purpose expenditures. If the excise tax imposed by section 4911(a) on the excess lobbying expenditures of an affiliated group of organizations is based upon the amount described in paragraph (c)(2) of this section, and if paragraphs (d)(2) and (d)(3) of this section do not apply because no electing organization has made lobbying or grass roots expenditures, respectively, each electing member organization is liable for a portion of the tax equal to the amount of tax multiplied by a fraction the numerator of which is the electing member organization's exempt purpose expenditures and the denominator of which is the exempt purpose expenditures of all the electing member organizations in the affiliated group.

(5) Taxable year for which liable. An electing member organization that is liable for all or a portion of the excise tax imposed by section 4911(a) on the excess lobbying expenditures of an affiliated group of organizations is liable for the tax as if the tax were imposed for its taxable year with which or within which ends the taxable year of the affiliated group.

(6) Organization a member of more than one affiliated group. If, under this paragraph (d), an organization is liable for its taxable year for two or more excise taxes imposed by section 4911(a) on the excess lobbying expenditures of two or more affiliated groups, then the organization is liable only for the greater of the two or more taxes.

(e) Former member organization. An electing member organization that ceases to be a member of an affiliated group of organizations, the taxable year of which is different from its own, must thereafter determine its liability under 56.4911-1 for the excise tax imposed by section 4911(a) as if its taxable year were the taxable year of the affiliated group of which it was formerly a member. An organization to which this paragraph (e) applies that is liable for the excise tax imposed by section 4911(a) is liable for the tax as if the tax were imposed for its taxable year within which ends the taxable year of the affiliated group of which it was formerly a member. The Commissioner may, at the Commissioner's discretion, permit an organization to disregard the rules of this paragraph (e) and to determine any liability under section 4911(a) based upon its own taxable year.

26 CFR 56.4911-9 Application of section 501(h) to affiliated groups of organizations.

(a) Scope. This section provides rules concerning the application of the limitations of section 501(h) to members of an affiliated group of organizations (as defined in 56.4911-7(e)(1)).

(b) Determination required. For each taxable year of an affiliated group of organizations, the calculations described in 1.501(h)-3(b)(1) (i) and (ii) must be made, based on the expenditures of the group. If, for a taxable year of an affiliated group, it is determined that the sum of the affiliated group's lobbying or grass roots expenditures for the group's base years exceeds 150 percent of the sum of the group's corresponding nontaxable amounts for the base years, then under section 501(h), each member organization that is an electing member organization (as defined in 56.4911-7(e)(4)) at any time in the taxable year of the affiliated group shall be denied tax exemption beginning with its first taxable year beginning after the end of such taxable year of the affiliated group. Thereafter, exemption shall be denied unless (pursuant to 1.501(h)-3(d)) the organization reapplies and is recognized as exempt as an organization described in section 501(c)(3). For purposes of this section, the term ''base years'' generally means the taxable year of the affiliated group for which a determination is made and the group's three preceding taxable years. Base years, however, do not include any year preceding the first year in which at least one member of the group was treated as described in section 501(c)(3).

(c) Member organizations that are not electing organizations. An organization that is a member of an affiliated group of organizations but that is not an electing member organization remains subject to the ''substantial part test'' described in section 501(c)(3) with respect to its activities involving attempts to influence legislation.

(d) Filing of information relating to affiliated group of organizations -- (1) Scope. The filing requirements described in this paragraph (d) apply to each member of an affiliated group or organizations for the taxable year of the member with which, or within which, ends the taxable year of the affiliated group.

(2) In general. Each member of an affiliated group of organizations shall provide to every other member of the group, before the first day of the second month following the close of the affiliated group's taxable year, its name, identification number, and the information required under 1.6033-2(a)(2)(ii)(k) for its expenditures during the group's taxable year and for prior taxable years of the group that are base years under paragraph (b). For groups electing under 56.4911-7(e)(5) to have each member file information with respect to the group based on its taxable year, each member shall provide the information required by the preceding sentence by treating each taxable year of any member of the group as a taxable year for the group.

(3) Additional information required. In addition to the information required by 1.6033-2(a)(2)(ii)(k), each member of an affiliated group of organizations must provide on its annual return the group's taxable year and, if the election under 56.4911-7(e)(5) is made, the name, identification number, and taxable year identifying the return with which its consent to the election was filed.

(4) Information required of electing member organization. In addition to the information required by 1.6033-2(a)(2)(ii)(k) and paragraph (d)(3) of this section, each electing member organization (as defined in 56.4911-7(e)(4)) must provide on its annual return --

(i) The name and identification number of each member of the group, and

(ii) The appropriate calculation described in 56.4911-8(d), if the organization is an electing member organization liable for all or any portion of the excise tax imposed by section 4911(a).

(e) Example. The provisions of this section may be illustrated by the following example:

Example. (1) M, N, and O are affiliated organizations under 56.4911-7(a). M's taxable year ends November 30, N's, January 31, and O's, June 30. On June 20, 1979, O files Form 5768 to elect to be governed by the expenditure test. M files Form 5768 in December of 1979. Neither M nor O revokes the election, and no organization makes the election provided for in 56.4911-7(e)(5). M, N, and O constitute an affiliated group of organizations, the first taxable year of which is the calendar year 1979.

(2) Because the organizations did not elect under 56.4911-7(e)(5) to use their own taxable years as the group's taxable years, the expenditures of the affiliated group for its first taxable year are the expenditures made by M, N, and O during calendar year 1979, and are reported by M, N, and O on their returns for their taxable years within which falls December 31, 1979. M reports the expenditures of the affiliated group for 1979 on its return for its taxable year ending November 30, 1980; and O, on its return for its taxable year ending June 30, 1980. N is not an electing member (as defined in 56.4911-7(e)(4)). Accordingly, under paragraph (d)(3)(i) of this section, it reports the name and identification number of each member of the group.

(3) The following tables summarize the expenditures by the affiliated group for the calendar years indicated. None of the group's lobbying expenditures for its taxable years 1979 through 1982 were grass roots expenditures.

Table I. -- Group's Expenditures TABLE/GRAPH OMITTED Table II. -- Expenditures of M and O TABLE/GRAPH OMITTED

(4) For the affiliated group's taxable years 1979, 1980, 1981, and 1982, the group has excess lobbying expenditures. Under section 4911(f)(1)(B) and 56.4911-8(d), M and O, as electing member organizations, are liable for a portion of the 25 percent excise tax imposed on the group's excess lobbying expenditures, based on their respective shares of the lobbying expenditures of all electing member organizations. For 1979, the excess lobbying expenditures are $20,000 ($100,000^$80,000). The tax is 25% of $20,000 or $5,000; M must pay $3,750 (($60,000/$80,000) $5,000 = $3,750), and O must pay $1,250 (($20,000/$80,000) $5,000 = $1,250). For 1980, the tax is $10,000 and each must pay $5,000. For 1981, the tax is $1,250, of which M must pay $750 and O must pay $500. For 1982, the tax is $30,000. M must pay $24,000 and O must pay $6,000. M and O are not liable for any separate 4911 excise tax that otherwise would have been imposed on their separate excess lobbying expenditures.

(5) Under 56.4911-9(b), the group must make the calculation described in 1.501(h)-3(b)(1) for each of the group's taxable years 1979 through 1982. The following illustrates only the required calculation for the group's taxable year 1982. For its taxable year 1982, the group must determine whether it normally has made lobbying expenditures in excess of its lobbying ceiling amount. The determination takes into account the group's expenditures in base years 1979 through 1982. The sum of the group's lobbying expenditures for the base years ($540,000) exceeds 150% of the sum of the group's lobbying nontaxable amounts for the base years (150% $355,000 = $532,500). Therefore, for its taxable year 1982, the group normally has made lobbying expenditures in excess of its lobbying ceiling amount. Under section 501(h) and 56.4911-9(b), M is not exempt from tax under section 501(a) as an organization described in section 501(c)(3) for its taxable year beginning December 1, 1983, and O is not exempt for its year beginning July 1, 1983. Whether N's lobbying expenditures disqualify it for tax exemption at any time after January 1, 1979, is determined under the substantial part test of section 501(c)(3).

(f) Cross reference. For other provisions relating to members of an affiliated group or organizations, see 56.4911-2(c)(4)(ii), 56.4911-4(c)(2), 56.4911-4(e), and 56.4911-5(f)(3).

26 CFR 56.4911-10 Members of a limited affiliated group of organizations.

(a) Scope. This section provides additional rules for members of a limited affiliated group of organizations, as defined in paragraph (b) of this section (relating generally to organizations that are affiliated solely by reason of provisions of their governing instruments that extend control solely with respect to national legislation). Except as otherwise provided in this section, 56.4911-8 and 56.4911-9 do not apply to members of a limited affiliated group. Thus, as modified by this section, the regulations under sections 501(h) and 4911 apply to electing members of a limited affiliated group individually. For example, 56.4911-2 through 56.4911-4, which, by their terms, include amounts described in paragraph (d) of this section, are used in applying sections 501(h) and 4911 to controlling member organizations (within the meaning of paragraph (c) of this section). Except as otherwise provided in this section, members of a limited affiliated group that are not electing organizations are subject to the substantial part test.

(b) Members of limited affiliated group. For purposes of section 4911, a limited affiliated group consists of two or more organizations that meet the following requirements:

(1) Each organization is a member of an affiliated group of organizations as defined in 56.4911-7(e);

(2) No two members of the affiliated group described in paragraph (b)(1) of this section are affiliated by reason of interlocking governing boards under 56.4911-7(b); and

(3) No member of the affiliated group described in paragraph (b)(1) of this section is, under its governing instrument, bound by decisions of one or more of the other such members on legislative issues other than national legislative issues.

Each organization in a group of organizations that satisfies the requirements of the preceding sentence is a member of the limited affiliated group.

(c) Controlling and controlled organizations. For purposes of this section, a member of a limited affiliated group is a controlling member organization if it controls one or more of the other members of the limited affiliated group, and a member of a limited affiliated group is a controlled member organization if it is controlled by one or more of the other members of the limited affiliated group. For purposes of the preceding sentence, whether an organization controls a second organization shall be determined by whether the second organization is bound, under its governing instruments, by actions taken by the first organization on national legislative issues.

(d) Expenditures of controlling organization -- (1) Scope. This paragraph (d) applies to a controlling member organization that has the expenditure test election in effect for its taxable year. This paragraph (d) applies whether or not the organization is also a controlled member organization. In determining a controlling member organization's expenditures, no expenditure shall be counted twice.

(2) Expenditures for direct lobbying. A controlling member organization for which the expenditure test election is in effect shall include in its direct lobbying expenditures for its taxable year the direct lobbying expenditures (as defined in 56.4911-2 and 56.4911-3) paid or incurred with respect to national legislative issues during such year by each organization that is a member of the limited affiliated group and is controlled (within the meaning of paragraph (c) of this section) by such controlling member organization.

(3) Grass roots expenditures. A controlling member organization for which the expenditure test election is in effect shall include in its grass roots expenditures for its taxable year the grass roots expenditures (as defined in 56.4911-2 and 56.4911-3) paid or incurred with respect to national legislative issues during such year by each organization that is a member of the limited affiliated group and is controlled (within the meaning of paragraph (c) of this section) by such controlling member organization.

(4) Exempt purpose expenditures. The exempt purpose expenditures of a controlling member organization do not include the exempt purpose expenditures (other than lobbying expenditures described in paragraphs (d)(2) and (d)(3) of this section) of any organization that is a controlled member organization with respect to it.

(e) Expenditures of controlled member. A controlled member organization that is an electing organization but that does not control (within the meaning of paragraph (c) of this section) any organization in the limited affiliated group shall apply sections 501(h) and 4911 and the regulations thereunder without regard to the expenditures of any other member of the limited affiliated group.

(f) Reports of members of limited affiliated groups -- (1) Controlling member organization's additional information on annual return. In addition to the information required by 1.6033-2(a)(2)(ii)(k), each controlling member organization for which the expenditure test election is in effect must provide on its annual return the name and identification number of each member of the limited affiliated group.

(2) Reports of controlling members to other members. Each controlling member organization for which an expenditure test election is in effect must notify each member that it controls of its taxable year in order for the controlled organization to prepare the report required by paragraph (f)(3) of this section. Such notification must be made before the beginning of the second month after the close of each taxable year of the controlling member for which the election is in effect.

(3) Reports of controlled member organization. Every controlled member organization (whether or not the expenditure test election is in effect with respect to it) shall provide to each member of the limited affiliated group that controls it, before the first day of the second month following the close of the taxable year of each such controlling organization, its name, identification number, and the lobbying expenditures and grass roots expenditures on national legislative issues incurred by the controlled member organization.

(g) National legislative issues. The term ''national legislative issue'' means legislation, limited to action by the Congress of the United States or by the public in any national procedure. If an issue is both national and local, it is characterized as a national legislative issue if the contemplated legislation is Congressional legislation.

(h) Examples. The provisions of this section are illustrated by the following examples:

Example (1). State X has an income tax law that uses definitions contained in the Internal Revenue Code as it may be amended from time to time. Legislation to change a definition in the Internal Revenue Code is pending in Congress. This is a national legislative issue even though Congressional action may affect state law.

Example (2). Organization M takes a position favoring approval by Congress of a proposed amendment to the United States Constitution. This is a national legislative issue. After approval by Congress and submission to the states for ratification, the proposed amendment ceases to be a national legislative issue.

Example (3). N, O, and P are organizations described in section 501(c)(3) that do not have interlocking governing boards, within the meaning of 56.4911-7(b). N has elected the expenditure test under section 501(h). By virtue of the governing instruments of O and P, any decision made by N on national legislative issues (such as issues concerning action on acts, bills, resolutions, or similar items by Congress) binds both O and P. Under their governing instruments, O and P are not bound on any other issues. Therefore, N, O, and P constitute a limited affiliated group. If P sends a series of letters and pamphlets to members of Congress in support of bill V, their cost will be included in N's and P's expenditures for direct lobbying and in N's and P's exempt purposes expenditures, but will not be included in O's lobbying expenditures. If N hires a lobbyist to solicit support for bill V, the cost of hiring the lobbyist will be includable only in N's lobbying expenditures. Any lobbying expenditures incurred by either O or P on any issue that is not a national legislative issue will not be included in N's lobbying expenditures.

Example (4). Y is an electing organization and a member of a limited affiliated group of organizations. Y controls organizations A, B, and C with respect to national legislative issues but is not controlled by any other organization. -- Y's taxable year is the calendar year. During 1982, A dissolves on March 15th and D, also controlled by Y with respect to national legislative issues, is established on May 1st. For 1982 the limited affiliated group comprises Y, A, B, C, and D.

Example (5). P, Q, R, and S are electing organizations. The governing instruments of Q require it to adopt the positions on national legislative issues adopted by P. R is similarly bound by Q's positions. R and S have interlocking governing boards, within the meaning of 56.4911-7(b), but S's governing instruments do not require it to adopt the position of any other organization on any legislative issues. Under 56.4911-7(e)(1), P, Q, R, and S are members of an affiliated group. Applying paragraph (b) of this section, it is determined that (1) P, Q, R and S are members of an affiliated group; and (2) R and S are affiliated by reason of interlocking governing boards. Accordingly, P, Q, R and S are not a limited affiliated group. Similarly, P, Q, and R do not constitute a limited affiliated group because they are members of an affiliated group comprising P, Q, R, and S, two of whose members, R and S, are affiliated by reason of interlocking governing boards.

Example (6). T, U, V, and W are electing organizations. The governing instruments of U and V require them to adopt the positions on national legislative issues adopted by T, but do not require them to adopt the positions of any organization on any other legislative issues. The governing documents of W require it to adopt the positions of V on all legislative issues. Applying paragraph (b) of this section, it is determined that (1) T, U, V, and W are all members of an affiliated group; (2) no two of T, U, V, and W are affiliated by reason of interlocking governing boards; but (3) W is bound, under its governing instrument, by decisions of V on legislative issues that are not national legislative issues. Accordingly, T, U, V, and W do not constitute a limited affiliated group. Similarly, T, U, and V do not constitute a limited affiliated group. T, U, V, and W are an affiliated group under 56.4911-7.

26 CFR 56.6001-1 Notice or regulations requiring records, statements, and special returns.

(a) In general. The provisions of 53.6001-1 shall apply to any person subject to tax under chapter 41, subtitle D, of the Code, by treating each reference to chapter 42 in 53.6001-1 as a reference to chapter 41.

(b) Cross references. See 56.4911-6 for general information on records of lobbying expenditures. See 56.4911-9(d) and 56.4911-10(f) for information that members of an affiliated group and a limited affiliated group, respectively, are to provide to other members of the group and to the Internal Revenue Service.

26 CFR 56.6011-1 General requirement of return, statement, or list.

Every organization liable for the tax imposed by section 4911(a) shall file an annual return with respect to the tax on the form prescribed by the Internal Revenue Service for that purpose and shall include the information required by the form and its instructions.

26 CFR 56.6011-1 PART 141 -- TEMPORARY EXCISE TAX REGULATIONS UNDER THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974

26 CFR 141.4975-13 Definition of ''amount involved'' and ''correction''.

Until superseded by permanent regulations under sections 4975(f) (4) and (5), 53.4941(e)-1 of this chapter (Foundation Excise Tax Regulations) will be controlling to the extent such regulations describe terms appearing both in section 4941(e) and section 4975(f). Because of the need for immediate guidance with respect to the provisions contained in this Treasury decision, it is found impracticable to issue it with notice and public procedure thereon under subsection (b) of section 553 of Title 5 of the United States Code or subject to the effective date limitation of subsection (d) of that section.

(Sec. 7805 of the Internal Revenue Code of 1954 (68A Stat. 917; 26 U.S.C. 7805))

(T.D. 7425, 41 FR 32890, Aug. 6, 1976, as amended by T.D. 8084, 51 FR 16305, May 2, 1986)

26 CFR 141.4975-13 PART 143 -- TEMPORARY EXCISE TAX REGULATIONS UNDER THE TAX REFORM ACT OF 1969

Sec.

143.1 (Reserved)

143.2 Taxes on self-dealing; scholarship and fellowship grants by private foundations.

143.3-6143.4 (Reserved)

143.5 Taxes on self-dealing; indirect transactions by a private foundation.

143.6 Election to shorten the period during which certain excess business holdings of private foundations are treated as permitted holdings.

Authority: Sec. 7805, 68A Stat. 917; 26 U.S.C. 7805.

143.1 (Reserved)

26 CFR 143.2 Taxes on self-dealing; scholarship and fellowship grants by private foundations.

(a) In general. Section 4941(d)(1)(D) of the Internal Revenue Code of 1954 as added by section 101(b) of the Tax Reform Act of 1969 (83 Stat. 500) provides that the term ''self-dealing'' includes any direct or indirect payment of compensation (or payment or reimbursement of expenses) by a private foundation to a disqualified person. Section 4941(d)(1)(E) provides that the term ''self-dealing'' includes any direct or indirect transfer to, or use by, or for the benefit of, a disqualified person of the income or assets of a private foundation.

(b) Scholarship and fellowship grants. A scholarship or fellowship grant to a person other than a Government official paid or incurred by a private foundation in accordance with a program which is consistent with the allowance of a deduction under section 170 for contributions made to such private foundation shall not constitute an act of self-dealing. For example, a scholarship or fellowship grant made by a private foundation in accordance with a program to award scholarship or fellowship grants to the children of employees of the donor shall not constitute an act of self-dealing if the private foundation has, after disclosure of the method of carrying out such program, received a ruling or determination letter stating that it is exempt from taxation under section 501(c)(3) and that contributions to the private foundation are deductible by the donor under section 170.

(T.D. 7030, 35 FR 4293, Mar. 10, 1970)

143.3 -- 143.4 (Reserved)

26 CFR 143.5 Taxes on self-dealing; indirect transactions by a private foundation.

(a) In general. Section 4941(d)(1)(D) of the Internal Revenue Code of 1954 as added by section 101(b) of the Tax Reform Act of 1969 (83 Stat. 500) provides that the term ''self-dealing'' includes any direct or indirect payment of compensation (or payment or reimbursement of expenses) by a private foundation to a disqualified person. Section 4941(d)(1)(E) provides that the term ''self-dealing'' includes any direct or indirect transfer to, or use by, or for the benefit of, a disqualified person of the income or assets of a private foundation. Section 4941(d)(1)(F) provides that the term ''self-dealing'' includes any direct or indirect agreement by a private foundation to make any payment of money or other property to a government official other than an agreement to employ such individual for any period after the termination of his government service if such individual is terminating his government service within a 90-day period.

(b) Indirect transactions by a private foundation. A transaction engaged in directly with a Government official by an organization described in section 509(a) (1), (2), or (3) which is the recipient of a grant from a private foundation shall not constitute an indirect act of self-dealing between such private foundation and Government official if the private foundation does not earmark the use of the grant for any named Government official and does not control or retain any veto power over the selection of the Government official by the grantee organization. For purposes of the preceding sentence, a grant by a private foundation shall not constitute an indirect act of self-dealing even though such foundation had reason to believe that certain Government officials would derive benefits from such grant so long as the grantee, in fact, exercises control over the selecting process and actually makes the selection completely independent of the private foundation.

(c) Example. The provisions of subsection (b) of this section may be illustrated by the following example.

Example. A private foundation made a grant to an organization described in section 509(a) (1), (2), or (3) to conduct a judicial seminar. The grantee conducting the seminar made payments to certain Government officials. By the nature of the seminar the grantor foundation had reason to believe that Government officials would be compensated for participation in such seminar. The grantee, however, had complete independent control over the selection of such participants. Since the grantee has not acted as a conduit for the private foundation and has, in fact, exercised independent control over the use of the grant, such grant by the private foundation shall not constitute an act of self-dealing with respect to the Government officials.

(T.D. 7036, 35 FR 6322, Apr. 18, 1970)

26 CFR 143.6 Election to shorten the period during which certain excess business holdings of private foundations are treated as permitted holdings.

(a) In general. Under section 4943(c)(4)(B)(ii), where the combined holdings on May 26, 1969, of a private foundation and all disqualified persons in any one business enterprise exceed 75 percent of the voting stock or more than a 75 percent interest in the value of all outstanding shares of all classes of stock in such enterprise, and the foundation's holdings on such date do not exceed 95 percent of the voting stock in such enterprise, then such combined holdings must be reduced to 50 percent of the voting stock of such enterprise by the end of a 15-year period beginning on May 26, 1969. However, under section 4943(c)(4)(E), the 15-year period during which such combined holdings in the enterprise must be reduced to 50 percent is to be shortened to a 10-year period, referred to in section 4943(c)(4)(B)(iii), if, at any time before January 1, 1971, one or more individuals:

(1) Who are substantial contributors (as described in section 507(d)(2)) or members of the family within the meaning of section 4946(d) of one or more substantial contributors to such private foundation, and

(2) Who on May 26, 1969, held in aggregate more than 15 percent of the voting stock of the enterprise, make an election in the manner described in paragraph (b). If an individual who owns 15 percent or less of the voting stock of the enterprise wishes to make an election under this paragraph, he and one or more other individuals who together own more than 15 percent of the voting stock of the enterprise may join in making an election by together filing the statement referred to in paragraph (b) of this section.

(b) Manner of making election. The election referred to in paragraph (a) of this section is made by filing two copies of a written statement with the Office of the Assistant Commissioner (Technical), Internal Revenue Service, Washington, D.C. 20224.

(c) Additional copies. The individual filing the written statement referred to in paragraph (b) of this section shall submit a copy of the statement to the private foundation with respect to which the election is being made and to the management of such business enterprise.

(d) Content of statement. The statement shall indicate that an election is being made under section 4943(c) (4)(E) of the Code, and shall be signed by each of the individuals making the election, and, in addition shall contain the following information:

(1) The name, address, and taxpayer identification number of each of the individuals making the election;

(2) The name and address of the foundation with respect to which such election is being made;

(3) The name and address of the business enterprise with respect to which the election is being made;

(4) The aggregate number of shares of voting stock in the business enterprise that were held on May 26, 1969, by each individual making the election, and, in addition, the percentage that such voting stock is of the total number of shares of voting stock issued and outstanding on such date;

(5) The aggregate number of shares of voting stock in the business enterprise held by the private foundation on May 26, 1969, and, in addition, the percentage that such voting stock is of the total number of shares of voting stock issued and outstanding on such date; and

(6) The total number of shares of voting stock in the business enterprise or the best available estimate thereof, that were issued and outstanding on May 26, 1969.

(e) Time for making election. The statement referred to in paragraph (b) of this section shall be filed before January 1, 1971.

(T.D. 7038, 35 FR 6962, May 1, 1970)

26 CFR 143.6 PART 145 -- TEMPORARY EXCISE TAX REGULATIONS UNDER THE HIGHWAY REVENUE ACT OF 1982 (PUB. L. 97-424)

Sec.

145.4051-1 Imposition of tax on heavy trucks and trailers sold at retail.

145.4052-1 Special rules and definitions.

145.4061-1 Application to manufacturers tax.

145.9000-1 Paperwork Reduction Act.

Authority: Secs. 4051 (96 Stat. 2174, 26 U.S.C. 4051), 4052 (96 Stat. 2175, 26 U.S.C. 4052), 7805 (68A Stat. 917, 26 U.S.C. 7805), and secs. 522 and 523 of the Highway Revenue Act of 1982, Pub. L. 97-424, 96 Stat. 2185, 2186.

Source: T.D. 7882, 48 FR 14362, Apr. 4, 1983, unless otherwise noted.

26 CFR 145.4051-1 Imposition of tax on heavy trucks and trailers sold at retail.

(a) Imposition of tax -- (1) In general. Section 4051(a)(1) imposes a tax on the first retail sale (as defined in 145.4052-1(a)) of the following articles (including in each case parts or accessories therefor sold on or in connection therewith or with the sale thereof):

(i) Automobile truck chassis and bodies;

(ii) Truck trailer and semitrailer chassis and bodies; and

(iii) Tractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer.

A sale of an automobile truck, truck trailer or semitrailer, shall be considered to be a sale of a chassis and of a body enumerated in this paragraph (a)(1).

(2) Special rule applicable to chassis and bodies. A chassis or body enumerated in paragraph (a)(1) of this section is taxable under section 4051(a)(1) only if such chassis or body is sold for use as a component part of a highway vehicle (as defined in paragraph (d) of 48.4061(a)-1 (Regulations on Manufacturers and Retailers Excise Taxes)), which is an automobile truck, truck trailer or semitrailer, or a tractor of the kind chiefly used for highway transportation in combination with a trailer or semitrailer. Furthermore, a chassis or body which is not enumerated in paragraph (a)(1) of this section is not taxable under section 4051(a)(1) even though such chassis or body is used as a component part of a highway vehicle (e.g., a chassis or body of a passenger automobile). See paragraphs (e)(1) and (e)(2) of this section for the definitions of a tractor and truck. See paragraphs (e) (1) through (5) of 145.4052-1 for other provisions applicable to this section. See paragraph (f) of this section, relating to tax-free sales of non-highway vehicles.

(3) Parts or accessories sold on or in connection with chassis, bodies, etc. The tax applies in respect of parts or accessories sold on or in connection with or with the sale of the vehicles specified in section 4051(a)(1). Thus, for example, if at the time the article is sold by the retailer, the part or accessory has been ordered from the retailer, the part or accessory will be considered as sold in connection with and with the sale of the vehicle. The tax applies in such a case whether or not the parts or accessories are billed separately by the retailer. If a taxable chassis, body, or tractor is sold by the retailer, without parts or accessories which are considered equipment essential for the operation or appearance of the taxable article, the sale of such parts or accessories by the retailer to the purchaser of the taxable article will be considered, in the absence of evidence to the contrary, to have been made in connection with the sale of the taxable article even though they are shipped separately, at the same time or on a different date. For example, if a retailer sells to any person a chassis and the bumpers for such chassis, or sells a taxable tractor and the fifth wheel and and attachments, the tax applies to such parts or accessories regardless of the method of billing or the time at which the shipments were made. Parts and accessories that are spares or replacements are not subject to tax.

(4) Exclusions. No tax is imposed by section 4051(a)(1) on the sale of automobile truck chassis and bodies, suitable for use with a vehicle with has a gross vehicle weight of 33,000 pounds or less, or truck trailer and semitrailer chassis and bodies, suitable for use with a trailer or semitrailer which has a gross vehicle weight of 26,000 pounds or less. For purposes of this paragraph (a)(4) the term ''suitable for use'' means practical and commercial fitness for such use. A chassis or body possesses practical fitness for use with a vehicle if it performs its intended function up to a generally acceptable standard of efficiency with the vehicle, and a chassis or body possesses commercial fitness for use with a vehicle if it is generally available for use with the vehicle at a price that is reasonably competitive with other articles that may be used for the same purpose. Thus, a truck chassis which is suitable for use with a vehicle having a gross vehicle weight of 33,000 pounds or less, is not subject to the tax imposed by section 4051(a)(1) regardless of the body actually mounted thereon. A truck trailer or semitrailer chassis suitable for use with a vehicle having a gross vehicle weight of 26,000 pounds or less, is not subject to tax regardless of the body actually mounted thereon. Where an exempt body is mounted on a taxable chassis, or a taxable body is mounted on an exempt chassis, the taxable chassis or body, as the case may be, nevertheless remains subject to such tax, if the resulting vehicle is a highway vehicle as defined in 48.4061(a)-1.

(b) Rate of tax. With respect to the articles enumerated in paragraph (a)(1) of this section, the rate of tax imposed by section 4051(a)(1) is 12 percent of the price for which the article is sold on or after April 1, 1983. See paragraph (d) of this section relating to vehicles on which a 10 percent tax was imposed under section 4061(a)(1).

(c) Separate purchase of truck or trailer and parts and accessories therefor -- (1) In general. If the owner, lessee, or operator of any vehicle, which contains an article taxable under paragraph (a)(1) of this section, installs (or causes to be installed) any part or accessory on such vehicle, and such installation is not later than 6 months after the date such vehicle (as it contains such article) was first placed in service, section 4051(b)(1) imposes a tax on such installation equal to 12 percent of the price of such part or accessory and its installation. For purposes of the tax imposed by section 4051(b)(1) and this paragraph (c)(1) the term ''parts and accessories'' does not include those parts and accessories which were previously exempt from tax under sections 4061(b) (1) and (2) as in effect prior to January 7, 1983. Thus, for example, articles of general use are exempt from tax. See 48.4061(b)-2 (b). See paragraphs (d) (1) through (4) of 145.4052-1 for determination of price.

(2) Placed in service. For purposes of paragraph (c)(1) of this section, a vehicle shall be considered placed in service on the date on which the owner of the vehicle took actual possession of the vehicle. This date can be established by the delivery ticket signed by the owner or other comparable document indicating delivery to and acceptance by the owner.

(3) Exceptions. The tax imposed by section 4051(b)(1) and paragraph (c)(1) of this section shall not apply if:

(i) The part or accessory intalled is a replacement part or accessory, or

(ii) The aggregate price of the parts and accessories (and their installation) described in paragraph (c)(1) of this section with respect to any vehicle does not exceed $200.

For purposes of paragraph (c)(3)(i) of this section, a part is a replacement part, regardless of when it is ordered, if its use with a vehicle is as a replacement for a part on such vehicle. For purposes of paragraph (c)(3)(ii) of this section, the term ''aggregate price of parts and accessories (and their installation)'' refers to all purchases and installation charges, not including replacement parts and accessories, made with respect to a vehicle within the 6 month period provided for in paragraph (c)(1) of this section. If the aggregate price of parts and accessories (and their installation) during the 6 month period exceeds $200, the tax imposed under section 4051(b)(1) and paragraph (c)(1) of this section shall apply to the cost of all parts and accessories (and their installation) during such period. For example, a vehicle is purchased and placed in service on July 1, 1983. On August 1, 1983, the owner purchases and has installed parts and accessories at a cost of $150. On September 1, 1983, the owner purchases and has installed parts and accessories at a cost of $300. On September 1, 1983 a tax of $54 will be imposed (12 percent $450). Any costs of additional parts and accessories installed with respect to the vehicle before January 1, 1984 (and the cost of installation) will also be subject to the 12 percent tax.

(d) Transitional rule. In the case of an article taxable under paragraph (a)(1) of this section, on which a tax was imposed under section 4061(a)(1), the rate of tax set forth in paragraph (b) shall be applied by substituting ''2 percent'' for ''12 percent.'' For example, if a manufacturer sells a tractor to a dealer on February 1, 1983, for $20,000 (which includes the Federal excise tax), for which a 10 percent tax was paid, and the dealer sells the tractor on April 10, 1983 for $25,000, a tax of 2 percent will be imposed on the $25,000 sales price. See paragraphs (d) (1) through (4) of 145.4052-1 relating to determination of price.

(e) Definitions. For purposes of this section:

(1) Tractor. (i) The term ''tractor'' means a highway vehicle primarily designed to tow a vehicle, such as a trailer or semitrailer, but does not carry cargo on the same chassis as the engine. A vehicle equipped with air brakes and/or towing package will be presumed to be primarily designed as a tractor.

(ii) An incomplete chassis cab shall be treated as a tractor if it is equipped with one or more of the following:

(A) A device for supplying pressure from the chassis cab to the brake system (air or hydraulic) of the towed vehicle;

(B) A mechanism for protecting the chassis cab brake system from the effects of a loss of pressure in the brake system of the towed vehicle;

(C) A control linking the brake system of the chassis to the brake system of the towed vehicle;

(D) A control in the cab for operating the towed vehicle's brakes independently of the chassis cab's brakes; or

(E) Any other equipment designed to make it suitable for use as a tractor.

An incomplete chassis cab which is not equipped with any of the devices set forth in paragraphs (e)(1)(ii) (A) through (E) of this section shall be treated as a truck if the purchaser certifies in writing that the vehicle will not be equipped for use as a tractor.

(2) Truck. The term ''truck'' refers to a highway vehicle that is primarily designed to transport its load on the same chassis as the engine even if it is also equipped to tow a vehicle, such as a trailer or semitrailer.

(3) Gross vehicle weight. (i) For purposes of this section the term ''gross vehicle weight'' means the maximum total weight of a loaded vehicle. Except as otherwise provided in paragraphs (e)(3) (ii) through (v) of this section, such maximum total weight shall be the gross vehicle weight rating of the article as specified by the manufacturer or established by the seller of the completed article, unless the Commissioner finds that such rating is unreasonable in light of the facts and circumstances in a particular case.

(ii) A seller must specify or establish a weight rating for each chassis, body, or vehicle sold on or after April 1, 1983 if such article requires no additional manufacture other than (A) the addition of readily attachable articles, such as tire or rim assemblies or minor accessories, (B) the performance of minor finishing operations, such as painting, or (C) in the case of a chassis, the addition of a body. If an article is specially equipped to the purchaser's specifications, such specifications may be used to establish the gross vehicle weight of the article.

(iii) A seller shall maintain a record of the gross vehicle weight rating of each truck, trailer and semitrailer sold and excluded from the tax imposed by section 4051(a)(1) by reason of sections 4051(a) (2), (3) and paragraphs (e)(3) (i) through (v) of this section. For this purpose, a record of the serial number of each such article shall be treated as a record of the gross vehicle weight rating of the article if such rating is indicated by the serial number.

(iv) If (A) the seller's rating indicated in a label or identifying device affixed to an article, (B) the rating set forth in the sales invoice or warranty agreement, and (C) the advertised rating for that article (or two or more identical articles) are inconsistent, the highest of such ratings will be considered to be the seller's gross vehicle weight rating specified or established for purposes of the tax imposed by section 4051(a)(1).

(v) The seller's gross vehicle weight rating must take into account, among other things, the strength of the chassis frame and the axle capacity and placement. The Commissioner may exclude from the gross vehicle weight rating any readily attachable parts to the extent the Commissioner finds that the use of such parts in computing the gross vehicle weight rating is unreasonable.

(f) Tax-free sales. Tax-free sales under section 4051 and this section may be made only if the persons who are eligible to sell or purchase articles free of tax imposed by section 4051, have satisfied the provisions of section 4222 and the regulations thereunder, relating to registration. With respect to tax-free sales of a chassis or body for use as a component of a vehicle other than a highway vehicle, similar provisions to paragraphs (e)(2) (ii), (iii), and (iv) of 48.4061(a)-1 shall apply.

(g) Effective date. The provisions of this section shall be effective for articles sold on or after April 1, 1983.

26 CFR 145.4052-1 Special rules and definitions.

(a) First retail sale -- (1) General rule. For purposes of section 4051(a)(1) and 145.4051-1, the term ''first retail sale'' means a taxable sale described in paragraph (a)(2) of this section.

(2) Taxable sale. The sale of an article is a taxable sale unless --

(i) The sale is a tax-free sale under section 4221,

(ii) Both the purchaser and the seller are registered under section 4222 and 48.4222(a)-1 and the seller has in good faith accepted from the purchaser a proper certification, as provided in paragraph (a)(6) of this section, executed in good faith, that the purchaser intends to lease such article on a long-term basis or resell such articles, or

(iii) There has been a prior taxable sale of the article. Notwithstanding the preceding clause, the sale of a chassis or body of a trailer or semitrailer (''trailer or semitrailer'') less than six months after a taxable sale of the article shall be treated as a taxable sale.

(3) Computation of tax -- (i) In general. If the sale of an article is a taxable sale under paragraph (a)(2) of this section, the tax shall be computed on the price as determined under paragraph (d) of this section.

(ii) Exception. If the taxable sale of an article is a taxable use of such article under paragraph (c) of this section, the tax shall be computed on the price as determined under paragraph (c) of this section.

(4) Special rule for tax-paid trailer and semitrailer. In the case of a taxable sale of a trailer or semitrailer less than six months after a taxable sale of the article, the seller in the subsequent sale (''the subsequent seller'') may claim a credit equal to the amount of tax previously paid by another person (''the previous taxpayer'') under section 4051(a)(1) with respect to the prior taxable sale of the article. The credit for such tax will be allowed to the subsequent seller only if the form on which the credit is claimed is accompanied by a statement, signed by the subsequent seller, indicating the amount of the credit being claimed under this paragraph (a)(4) and stating that --

(i) The subsequent seller has not been repaid any portion of such tax by the previous taxpayer,

(ii) The subsequent seller has not provided the previous taxpayer with written consent to allow the previous taxpayer to claim a credit or refund of such tax under section 6416 (a), and

(iii) The subsequent seller has records (e.g. invoices) substantiating the amount of tax paid by the previous taxpayer with respect to the prior taxable sale of such article.

In no case shall the amount of the credit allowable under this paragraph (a)(4) with respect to an article exceed the tax liability of the subsequent seller with respect to the sale of such article.

(5) No installment payments of tax. If a lease or an installment sale (or another form of sale under which the sales price is paid in installments) is, or is deemed to be, a taxable sale under this section, then the liability for the entire tax arises at the time of the lease or installment sale. No portion of the tax is deferred by reason of the fact that the sales price is paid in installments.

(6) Certificate. A certificate signed by the purchaser, or an officer or employee authorized by the purchaser to sign the certificate, may be accepted by a seller in support of a nontaxable sale to the purchaser. If it is impracticable to furnish a separate certificate for each sale because of the frequency of sales to such purchaser, a certificate covering all orders between given dates (such period not to exceed 12 calendar quarters) will be acceptable. The purchaser may revoke the certificate by sending a written revocation to the seller. The certificate and proper records of invoices, orders, etc., relating to sales made pursuant to such certificate, must be retained by the seller as provided in section 6001 and the regulations thereunder. The certificate shall be substantially in the following form:

Exemption Certificate

I hereby certify that I am XXXXXX (Title) of XXXXXX, (Name of purchaser) that I am authorized to execute this certificate, and that:

(Check appropriate line)

XXXthe article or articles specified in the accompanying order, or on the reverse side hereof, (or)

XXXall orders placed by the purchaser for the period commencing XXXXXXX (Date) (period not to exceed 12 calendar quarters), are purchased either for resale or for lease on a long-term basis.

I have filed Form 637 and have received registration number XXXX.

I understand that the fraudulent use of this certificate to secure exemption will subject me and all parties making such fraudulent use to a fine of not more than $10,000, or to imprisonment for not more than 5 years, or both, together with costs of prosecution.

(Signature)

(Address)

(7) Registration. Section 4222 and the regulations thereunder shall apply to persons making sales which are not treated as taxable sales pursuant to paragraph (a)(2)(ii) of this section.

(b) Tax treatment of leases -- (1) Long-term lease. For purposes of this section and 145.4051-1, the leasing of an article on a long-term basis (as defined in paragraph (d)(6) of this section) will be deemed to be a sale of the article and will be deemed to be a taxable sale unless one of the exceptions contained in paragraph (a)(2) of this section applies. Thus, if a dealer purchases an article tax-free under an exception contained in paragraph (a)(2) of this section and then leases the article on a long-term basis, the leasing of the article will be treated as a taxable sale.

(2) Short-term lease. For purposes of this section and 145.4051-1, the leasing of an article on a short-term basis (as defined in paragraph (d)(6) of this section) will be deemed to be a taxable use of such article under paragraph (c) of this section and will be deemed to be a taxable sale unless one of the exceptions contained in paragraph (a)(2) of this section applies.

(3) Computation of tax -- (i) Long-term lease by manufacturer, producer, or importer. When a manufacturer, producer, or importer is the lessor of an article on a long-term basis (as defined in paragraph (d)(6) of this section) and such lease is deemed to be a taxable sale under paragraph (b)(1) of this section, the tax shall be computed on a presumptive retail sales price as determined under paragraph (d)(4)(i) of this section. The manufacturer, producer, or importer shall be liable for the tax as if the article were sold at retail by such manufacturer, importer, or retailer.

(ii) Long-term lease by persons other than manufacturer, producer, or importer. When a person other than a manufacturer, producer, or importer is the lessor of an article on a long-term basis (as defined in paragraph (d)(6) of this section) and such lease is deemed to be a taxable sale under paragraph (b)(1) of this section, the tax shall be computed on a presumptive retail sales price as determined under paragraph (d)(5) (i) of this section. Such person shall be liable for the tax as if the article were sold at retail by such person.

(c) Use treated as sale -- (1) In general. For purposes of this section and 145.4051-1, the use of an article will be deemed to be a sale of the article. Furthermore, if a person purchases a vehicle for which no tax was imposed under section 4051(a)(1) and thereafter converts such vehicle into an article which would have been taxable under section 4051(a)(1) and uses it, such person shall be liable for the tax as if such article were sold at retail by such person. For example, a truck having a gross vehicle weight rating of 24,000 pounds is sold at retail. The purchaser adds a lift axle, thereby increasing the gross vehicle weight rating to 34,000 pounds. If the purchaser thereafter uses the vehicle the purchaser shall be liable for the tax as if such article were sold at retail.

(2) Exemption for use in further manufacture. The tax on the use of an article to which paragraph (c)(1) of this section applies shall not apply to use of the article by such person as material in the manufacture or production of, or as a component part of, another article to be manufactured or produced by the same user.

(3) Time of application of tax. In the case of taxable use of an article by the seller, the tax attaches at the time such use begins. It tax applies by reason of the sale of an article on or in connection with, or with the sale of another article, the tax attaches at the time of the sale of such other article.

(4) Events subsequent to taxable use of article. Liability for tax incurred on the use of an article is not extinguished or reduced because of any subsequent sale or lease of the article even if such sale or lease would have been exempt if the article had been sold or leased prior to use. If a seller of an article incurs liability for tax on his or her use of an article, and thereafter sells or leases the article in a transaction which otherwise would be subject to tax, liability for tax is not incurred on such sale or lease.

(5) Computation of tax. (i) Except as provided in paragraphs (c)(5)(ii) and (c)(5)(iii) of this section.

(ii) If the seller of an article regularly sells such articles at retail in arm's length transactions, tax liability on its use of any such article shall be computed on its lowest established retail price for such articles in effect at the time of the taxable use. In establishing such price, there shall be included and excluded, as applicable, the charges and readjustments specified in sections 4216(a), 4216(f), and 6416(b)(1) as in effect at the time the tax liability on the use of the article is incurred. If the seller of an article does not regularly sell such articles at retail in arm's length transactions, a constructive price on which the tax shall be computed will be determined by the Commissioner. This price will be established after considering the selling practices and price structures of sellers of similar articles.

(iii) In the case of any short-term lease (as defined in paragraph (d)(6) of this section) by any person other than a manufacturer, producer, or importer (or related person as defined in paragraph (d)(2)(ii) of this section) of an article that is deemed to be a taxable use of such article under paragraph (b)(2) of this section, the tax imposed by section 4051(a)(1) shall be computed on a price equal to the sum of --

(A) The price (as determined under paragraph (d) of this section) at which such article was sold to the lessor plus the cost of any parts and accessories installed by the lessor (or an agent of the lessor) on such article before the first use or lease by the lessor, plus

(B) The product of the sum described in paragraph (c)(5)(iii)(A) of this section and the presumed markup percentage (as defined in paragraph (d)(7) of this section).

(d) Determination of price -- (1) In general. The price for which an article is sold includes the total consideration paid for the article whether that consideration is paid in money, services, or other forms. In addition, there shall be included any charge incident to placing the article in condition ready for use. Similar rules to section 4216(a) and the regulations thereunder, relating to charges to be included in the price and excluded from the price, shall apply. For example, charges for transportation, delivery, insurance, and installatioin (other than installation charges to which section 4051(b) applies), and other expenses actually incurred in connection with the delivery of an article to a purchaser pursuant to a bona fide sale shall be excluded from the price in computing the tax.

(2) Presumptive retail sales price where tax paid by manufacturer, producer, or importer -- (i) In general. In the case of a taxable sale (other than a taxable sale described in paragraph (b)(1) of this section) where a manufacturer, producer, importer, or related person is liable for the tax imposed by section 4051, such tax shall be computed on a price equal to the sum of --

(A) The price that would (but for this paragraph (d)(2)) be determined under this paragraph (d), and

(B) The product of the price determined under paragraph (d)(2)(i)(A) of this section and the presumed markup percentage (as defined in paragraph (d)(7) of this section).

(ii) Related person defined -- (A) In general. Except as provided in paragraph (d)(2)(ii)(B) of this section, the term ''related person'' means any person that is a member of the same controlled group (within the meaning of section 5061(e)(3)) as the manufacturer, producer, or importer.

(B) Exception for permanent retail establishment. A person shall not be treated as a related person with respect to the sale of any article if --

(1) Such person sells the article through a permanent retail establishment in the normal course of business of being a retailer, and

(2) Such person has records (e.g., invoices) that substantiate that the article was sold for a price that included a markup equal to or greater than the presumed markup percentage (as defined in paragraph (d)(7) of this section).

(3) Retail sales price where tax paid by person other than a manufacturer, producer, importer, or related person. -- (i) In general. In the case of a taxable sale (other than a taxable sale defined in paragraph (b)(1) of this section) where a person other than a manufacturer, producer, importer, or related person is liable for the tax imposed by section 4051, such tax shall be computed on a price determined under paragraph (d)(1) of this section.

(ii) Exception. When a person other than a manufacturer, producer, importer, or related person is liable for the tax imposed by section 4051, such tax shall be computed on a price determined under paragraph (d)(2)(i) of this section if --

(A) Such person does not perform any significant activities relating to the processing of the sale of an article,

(B) The principal purpose for processing the sale through such person is to avoid or evade the presumed markup under paragraph (d)(2)(i)(B) of this section, and

(C) Such person does not have records (e.g., invoices) substantiating that the article was sold for a price that included a markup equal to or greater than the presumed markup percentage as defined in paragraph (d)(7) of this section.

(4) Presumptive retail sales price in the case of a lease by a manufacturer, producer, or importer. In the case of any long-term lease (as defined in paragraph (d)(6) of this section) by a manufacturer, producer, importer, or a related person (as defined in paragraph (d)(2)(ii) of this section) of an article that is deemed to be a taxable sale of such article under paragraph (b)(1) of this section, the tax imposed by section 4051(a)(1) shall be computed on a price equal to the sum of --

(i) A constructive sales price established by the Commissioner based on the price at which such article would be sold by a manufacturer, producer, or importer in a sale other than a taxable sale (e.g., a sale to which the exceptions contained in paragraph (a)(2)(ii) of this section applies) on the date the lease is made, and

(ii) The product of the constructive sales price referred to in paragraph (d)(4)(i) of this section and the presumed markup percentage as defined in paragraph (d)(7) of this section.

(5) Presumptive retail sales price in the case of a long-term lease by any other person. In the case of any long-term lease (as defined in paragraph (d)(6) of this section) of an article in which any person other than a manufacturer, producer, or importer (or related person as defined in paragraph (d)(2)(ii) of this section) is the lessor and the long-term lease is deemed to be a taxable sale of such article under paragraph (b)(1) of this section, the tax imposed by section 4051(a)(1) shall be computed on a price equal to the sum of --

(i) The price (as determined under this paragraph (d)) at which such article was sold to the lessor plus the cost of any parts and accessories installed by the lessor (or an agent of the lessor) on such article before the first use by the lessee or leased in connection with such long-term lease, and

(ii) The product of the sum described in paragraph (d)(5)(i) of this section and the presumed markup percentage as defined in paragraph (d)(7) of this section.

(6) Long-term and short-term lease defined. For purposes of this section, the term ''long-term lease'' means any lease with a term of one year or more. The term ''short-term lease'' means any lease with a term of less than one year. In determining a lease term, options to renew shall be taken into account. In addition, two or more successive leases that are part of the same transaction (or a series of related transactions) with respect to the same or substantially similar article, shall be treated as one lease.

(7) Presumed markup percentage -- (i) In general. Except as provided in paragraph (d)(7)(ii) of this section, for purposes of this section the term ''presumed markup percentage'' shall be four percent.

(ii) Exceptions. For purposes of this section the ''presumed markup percentage'' for trailers, semitrailers, and remanufactured automobile truck chassis and bodies and tractors shall be zero percent. For purposes of this section an article is a remanufactured article if --

(A) The refurbishing, renovation, or repair of the article causes it to be subject to the tax imposed by section 4051, and

(B) Before remanufacture, such article was previously subject to the tax imposed by section 4051 (or section 4061 prior to its repeal).

(8) Items excluded from price. There shall be excluded from the price:

(i) The amount ot tax imposed under sections 4051(a)(1) and (b)(1);

(ii) If stated as a separate charge, the amount of any retail sales tax imposed by any state or political subdivision thereof or the District of Columbia, whether the liability for such tax is imposed on the vendor or vendee; and

(iii) The fair market value (including any tax imposed by section 4071) at retail of any tires (not including any metal rim or rim base). For purposes of this paragraph (d)(8)(iii), fair market value at retail shall be determined by the lowest established price for which the vehicle retailer would sell such tires at retail in the ordinary course of trade. The lowest established price is the lowest price for which the vehicle retailer sells, or offers to sell, a single tire to an independent purchaser who would not ordinarily be expected to buy more than one. If the vehicle retailer has no lowest established price the Commissioner will accept any price provided, under the facts and circumstances, such price is not unreasonable. For vehicles sold on or after April 1, 1983, and before October 13, 1985, a price will not be considered unreasonable if it is no more than an amount equal to 50 percent of the manufacturer's suggested retail price.

(9) Trade-ins. If, in connection with the sale of an article subject to the tax imposed under section 4051(a)(1) or (b)(1) on the price for which sold, a vendor receives from its vendee another article in exchange, the tax on the vendor's sale shall be computed on the basis of the full price of the article sold, unreduced by any amount allowed for the article received from the vendee. For example, where a vehicle costing $20,000 is purchased for $16,000 cash plus a used vehicle valued at $4,000, tax is $2,400 (12 percent x $20,000).

(10) Sales not at arm's length. For purposes of 145.4051-1 and this section, a sale is considered to be made under circumstances otherwise than at ''arm's length'' if:

(i) One of the parties is controlled (in law or in fact) by the other, or there is common control, whether or not such control is actually exercised to influence the sale price, or

(ii) The sale is made pursuant to special arrangements between a seller and a purchaser.

In the case of an article sold otherwise than at arm's length, and sold at less than the fair market price, the tax imposed under section 4051(a)(1) or (b)(1) shall be computed on the price for which similar articles are sold at retail in the ordinary course of trade, as determined by the Commissioner. Once such a price has been determined, no further adjustment of such price shall be made.

(e) Examples. The provisions of this section may be illustrated by the following examples:

Example (1). M manufactures trucks that are taxable under section 4051. On July 11, 1988, D, a corporation that is a dealer, purchases one truck from M for $50,000. M does not own any stock in D. Prior to this transaction, D gave M a certificate that meets the specifications detailed in paragraph (a)(6) of this section. The certificate states that the truck will be resold or leased on a long-term basis. M's sale to D is not a taxable sale of the truck (within the meaning of paragraph (a)(2) of this section). On July 20, 1988, D resells the truck to a purchaser, P, for $52,000. The additional $2,000 includes the dealer's mark-up, costs of transporting the truck from M to D, and overhead. No parts or accessories were added to the truck. P did not give D a certificate and did not have an agreement with D under which all vehicles purchased were to be resold. The sale of the truck by D to P is a taxable sale within the meaning of paragraph (a)(3) of this section. Therefore, D has a tax liability of $6,240 (12% $52,000).

Example (2). Assume the same facts as in example (1) except that M owns 80 percent of D's stock. D and M are members of the same controlled group (within the meaning of section 5061(e)(3)). Therefore, D is a related person under paragraph (d)(2)(ii)(A) of this section. On July 20, 1988, D sells the truck to P for $51,000. D does not have records substantiating that the truck was sold for a price that included a markup equal to or greater than the presumed markup percentage. The tax on the sale of the truck to P is determined under paragraph (d)(2)(i) of this section. Therefore, D has a tax liability of $6,240 (12% ($50,000+($50,000 4%))).

Example (3). Assume the same facts as in example (1) except that D does not perform any significant activities relating to the sale. Assume further that the principal purpose for processing the sale through D is to avoid the presumed markup and that D did not sell the truck for a price that included a markup equal to or greater than the presumed markup percentage. D, however, is designated the seller of the truck on the invoice. Pursuant to paragraph (d)(3)(ii) of this section, the price of the truck shall be computed on a price determined under paragraph (d)(2)(i). Therefore, D, the taxpayer, has a tax liability of $6,240 (12% ($50,000+($50,000 4%))).

Example (4). Assume the same facts as in example (1) except that on July 20, 1988, D leases the truck for a two-year period (i.e., on a long-term basis) to L, a lessee. D's leasing of the truck to L is treated as a taxable sale under paragraph (b)(1) of this section and the tax is computed on the price as determined under paragraph (d)(5)(i) of this section. D has a tax liability of $6,240 (12% ($50,000+($50,000 4%))).

Example (5). Assume the same facts as in example (1) except that on July 20, 1988. D leases the truck to L for a six-month period (i.e., a short-term lease). The lease is treated as a use under paragraph (b)(2) of this section. The tax is computed on the price as determined under paragraph (c)(5) of this section. D has a tax liability of $6,240 (12% ($50,000+($50,000 4%))).

Example (6). Assume the same facts as in example (1) except that D does not give M a certificate. The sale by M to D is a taxable sale of the truck under paragraph (a)(2) of this section. M's tax liability is $6,240 (12% ($50,000+($50,000 4%))). On July 20, 1988, D leases the truck to L, a lessee. The lease has a two-year term. Since the lease to L occurred after a taxable sale of the truck, paragraph (b)(1) of this section does not apply, and the lease is not treated as a taxable sale under this section.

Example (7). M manufactures trucks that are taxable under section 4051. On July 11, 1988, M leases a truck to a lessee, L. The lease has a two-year term. The lease is treated as a taxable sale under paragraph (b)(1) of this section and the tax is computed on the price as determined under paragraph (d)(4)(i) of this section. The constructive sales price established by the Commissioner, pursuant to paragraph (d)(4)(i) of this section, is $50,000. M has a tax liability of $6,240 (12% ($50,000+($50,000 4%))).

Example (8). Assume the same facts as in example (7) except that the lease has a six-month term. The lease is treated as a taxable use under paragraph (b)(2) of this section and the tax is computed under paragraph (c)(5) of this section. The constructive sales price established by the Commissioner, pursuant to paragraph (c)(5)(i) of this section, is $52,000. M has a tax liability of $6,240(12% $52,000).

Example (9). M manufactures truck trailers and semitrailers that are taxable under section 4051. On July 5, 1988, D, a dealer, purchases a trailer from M for $10,000. Prior to this transaction, D did not give M a certificate and D did not have an agreement with M to resell all articles purchased. The sale by M to D is a taxable sale of the trailer under paragraph (a)(2) of this section. M has a tax liability of $1,200(12% $10,000+($10,000 0%)).

Example (10). Assume the same facts as in example (9) except that on July 12, 1988, D resells the trailer to P, a purchaser, for $10,500 (the additional $500 includes the dealer's markup, costs of transporting the trailer from M to D, and overhead). P did not give D a certificate and P did not have an agreement with D that stipulates that all articles purchased were to be leased on a long-term basis or resold. The sale of the trailer by D to P is a taxable sale within the meaning of paragraph (a)(3) of this section. Therefore, D has a tax liability of $1,260(12% $10,500). D, however, may file for a credit of $1,200 under section 6402 provided that the requirements of paragraph (a)(4) of this section are met.

(f) Other rules made applicable. For purposes of 145.4051-1 and this section, rules similar to the following provisions shall apply:

(1) Section 48.0-2, relating to general definitions and attachment of tax;

(2) Paragraphs (a) (2) and (3) of 48.4061 (a)-1;

(3) The exemptions provided by sections 4063 (a) and (d) and the regulations thereunder;

(4) Section 4216(f) and the regulations thereunder, relating to the incorporation of used components; and

(5) Section 4221 and the regulations thereunder, relating to certain tax-free sales.

(g) Effective date -- (1) In general. Except as provided below, the provisions of this section shall be effective for articles sold or leased on or after April 1, 1983.

(2) Certain sales made prior to November 12, 1985. If a sale to a lessor before November 12, 1985, was not taxable under 145.4052-1 of the temporary regulations contained in 26 CFR Part 145 revised as of April 1, 1983, (the ''prior regulations'') and it was so treated by the parties, a subsequent sale or lease that was or would have been treated as the first retail sale of the article under the prior regulations will be treated as a taxable sale for purposes of this section. The tax on such subsequent sale will be based on a price determined under paragraph (d) of this section. For example, if an article was sold to a purchaser who intended to lease such article long-term, the sale would not have been taxable under the prior regulations even though the seller did not receive a certificate of the purchaser's intent to lease the vehicle. If such a sale was treated as nontaxable by the parties, and the purchaser leases it long-term on or after October 1, 1987, the lease will be treated as a taxable sale of the article. The tax is to be computed under paragraph (b)(3)(ii) of this section and the price will be computed under paragraph (d)(5).

(3) Certain sales made after November 11, 1985, and before October 1, 1987 -- (i) Sales not treated as taxable by purchaser and seller. If a sale to a purchaser after November 11, 1985, and before October 1, 1987, was not treated as taxable by the parties, a subsequent sale or lease that was or would have been treated as the first retail sale of the article under the temporary regulations published in the September 13, 1985, issue of the Federal Register (50 FR 37350) (''the interim regulations'') will be treated as a taxable sale for purposes of this section. The tax on a sale or lease after September 30, 1987, will be based on a price determined under paragraph (d) of this section. For example, if a vehicle was sold on January 3, 1987, to a purchaser who intended to resell the article and who was not in the business of leasing to any extent, the sale would not have been taxable under the interim regulations even though the seller did not receive a certificate indicating the purchaser's intent to resell the article. If such a sale was not treated as a taxable sale by the parties, and the purchaser resells the article, the resale will be treated as a taxable sale of the article under paragraph (a)(2) of this section.

(ii) Sales treated as first retail sale by purchaser and seller. If the sale of an article after November 11, 1985, and before October 1, 1987, was treated as a taxable sale by the parties and tax was paid with respect to the article under the interim regulations, the subsequent sale of the article by the purchaser will not be treated as a taxable sale under paragraph (a)(2) of this section.

(T.D. 7882, 48 FR 14362, Apr. 4, 1983, as amended by T.D. 8050, 50 FR 37351, Sept. 13, 1985; T.D. 8200, 53 FR 16869, May 12, 1988)

26 CFR 145.4061-1 Application to manufacturers tax.

The provisions of 145.4051-1(e) (1) and (2), relating to the definition of tractors and trucks, shall apply to seciton 4061(a)(1) for sales made on or after January 7, 1983. However, an incomplete chassis cab will be treated as a truck chassis for sales made on or after January 7, 1983, and before April 1, 1983. For purposes of section 4061, gross vehicle weight shall be determined under 48.4061(a)-1(f)(3) (i) through (iv) for sales made on or after January 7, 1983, and before April 1, 1983.

26 CFR 145.9000-1 Paperwork Reduction Act.

The regulations in this part (to the extent required) have been submitted to the Office of Management and Budget (OMB) under the Paperwork Reduction Act (44 U.S.C. 3507). Regulations 145.1-1 through 145.1-7, 145.4051-1, 145.4052-1 and 145.4061-1 were assigned by OMB the Control number 1545-0745. Regulation 145.2-1 through 145.2-6 were assigned by OMB the control number 1545-0744.

(Sec. 521 of the Highway Revenue Act of 1982, 96 Stat. 2097, and sec. 7805 of the Internal Revenue Code of 1954, 68A Stat. 917 (26 U.S.C. 7805))

(T.D. 7882, 48 FR 14362, Apr. 4, 1983, as amended by T.D. 7883, 48 FR 14374, Apr. 4, 1983)

26 CFR 145.9000-1 PART 148 -- CERTAIN EXCISE TAX MATTERS UNDER THE EXCISE TAX TECHNICAL CHANGES ACT OF 1958

Sec.

148.1-3 Temporary procedures for tax-free sales and purchases.

148.1-4 Tax-free sales or services to certain nonprofit educational organizations.

148.1-5 Constructive sale price.

Authority: Sec. 7805, 68A Stat. 917; 26 U.S.C. 7805.

26 CFR 148.1-3 Temporary procedures for tax-free sales and purchases.

(a) Purpose of this section. The purpose of this section is to set forth temporary rules for compliance with the registration requirements of section 4222 of the Internal Revenue Code of 1954, as amended, whereby articles subject to tax under Chapter 32 of such Code may be sold tax free on and after January 1, 1959.

(b) Tax-free sales only if seller and purchaser are registered. Except as provided in paragraphs (c) and (i) of this section, an article subject to tax under chapter 32 may on or after January 1, 1959 (on or after May 1, 1960, in the case of a bicycle tire or tube to be used for the purpose prescribed in subparagraph (13) of this paragraph and on or after October 1, 1961, in the case of gasoline to be used for the purpose described in subparagraph (11) (ii) of this paragraph), be sold tax free by the manufacturer for the following uses (but only if the seller, first purchaser, and second purchaser, as the case may be, have registered as required by this section):

(1) For use by the purchaser for further manufacture;

(2) For resale by the purchaser to a second purchaser for use by such second purchaser in further manufacture;

(3) For export by the purchaser;

(4) For resale by the purchaser to a second purchaser for export by the second purchaser;

(5) For use by the purchaser as supplies for vessels or aircraft subject in the case of civil aircraft to the reciprocity requirements of section 4221(e);

(6) To a State or local government for its exclusive use;

(7) To a nonprofit educational organization for its exclusive use;

(8) In the case of a tire, inner tube, or automobile radio or television receiving set, for use by the purchaser for sale on or in connection with the sale of another article manufactured or produced by such purchaser, provided such other manufactured article is to be sold by the manufacturer thereof for one of the purposes specified in subparagraphs (3) to (7), inclusive, of this paragraph;

(9) In the case of musical instruments, to a religious institution for exclusively religious purposes;

(10) In the case of automobile bodies, to a manufacturer or producer of automobile trucks or other automobiles to be sold by such manufacturer or producer;

(11) In the case of gasoline, (i) to a producer of gasoline, or (ii) for use by the purchaser, for nonfuel purposes, as a material in the manufacture or production of another article to be manufactured or produced by him;

(12) In the case of lubricating oil, to a manufacturer or producer of lubricating oil for resale by him; or

(13) In the case of a bicycle tire and inner tube for such tire, for use by the purchaser as material in the manufacture or production of, or as a component part of, a bicycle (other than a rebuilt or reconditioned bicycle).

(c) Tires, tubes, and automobile radio or television receiving sets. A tire, inner tube, or automobile radio or television receiving set may not be sold tax free under paragraphs (b) (1) and (2) of this section for use, or for resale for use, in further manufacture.

(d) Definitions. For purposes of this section:

(1) Manufacturer. The term ''manufacturer'' includes a producer or importer of an article.

(2) Export. The term ''export'' includes shipment to a possession of the United States; and the term ''exported'' includes shipped to a possession of the United States.

(3) Supplies for vessels or aircraft. The term ''supplies for vessels or aircraft'' means fuel supplies, ships' stores, sea stores, or legitimate equipment on vessels of war of the United States or of any foreign nation, vessels employed in the fisheries or in the whaling business, or vessels actually engaged in foreign trade or trade between the Atlantic and Pacific ports of the United States or between the United States and any of its possessions. For purposes of the preceding sentence, the term ''vessels'' includes civil aircraft employed in foreign trade or trade between the United States and any of its possessions, and the term ''vessels of war of the United States or of any foreign nation'' includes aircraft owned by the United States or by any foreign nation and constituting a part of the armed forces thereof.

(4) State and local government. The term ''State and local government'' means any State, the District of Columbia, or any political subdivision of any of the foregoing.

(5) Nonprofit educational organization. For definition of the term ''nonprofit educational organization'' see paragraph (b) of 148.1-4.

(6) Sold for use in further manufacture. An article shall be treated as sold for use in further manufacture if:

(i) Such article (other than an article referred to in subdivision (ii)) is sold for use by the purchaser as material in the manufacture or production of, or as a component part of, another article taxable under Chapter 32 to be manufactured or produced by him; or

(ii) In the case of an automobile part or accessory taxable under section 4061(b), a radio or television component taxable under section 4141, or a camera lens taxable under section 4171, such article is sold for use by the purchaser as material in the manufacture or production of, or as a component part of, any other article (taxable or nontaxable) to be manufactured or produced by him.

(7) Bicycle tires. The term ''bicycle tire'' means a tire, composed of rubber in combination with fabric or other reinforcing element, which is not more than 28 inches in outer diameter and not more than 2 1/4 inches in cross section and which is primarily designed or adapted for use on bicycles.

(e) Registration -- (1) Persons who have Certificates of Registry. Any person who has been issued a Certificate of Registry which is still in effect (i) authorizing him to sell or purchase articles tax free, or (ii) as a producer or importer of gasoline or manufacturer or producer of lubricating oil, may use such registration for tax-free sales and purchases as provided by this section.

(2) Persons who have registered by letter. Any person who does not have a Certificate of Registry and who registered by addressing a communication to a district director or the Director of International Operations as was provided in subparagraph (2) of this paragraph in effect prior to May 11, 1960, may sell and purchase articles tax free as provided in paragraph (b) of this section pursuant to such registration unless the district director or the Director of International Operations, as the case may be, furnishes him with written notification that application on Form 637 for registry is required. In such event, the application for registry shall be made at the time, in the form, and in the manner prescribed in such written notification. Any person who has registered by letter and who has not been assigned a registration number may, if he so desires, file Form 637, in accordance with the provisions of subparagraph (3) of this paragraph, in order to obtain a registration number.

(3) Persons who have not previously registered. Any person who is eligible to sell or purchase articles tax free as provided in paragraph (b) of this section and who has not registered as referred to in subparagraph (1) or (2) of this paragraph may make such tax-free sales or purchases in accordance with the following procedure. Such person shall, prior to making a tax-free sale or purchase, file Form 637, in duplicate, executed in accordance with the instructions contained in such form, with the district director for the district in which is located his principal place of business (or if he has no principal place of business in the United States, with the Director of International Operations, Internal Revenue Service, Washington D.C. 20225). Copies of Form 637 may be obtained from any district director. The person who receives a validated Form 637 shall be considered to be registered for purposes of selling or purchasing articles tax free as provided in paragraph (b) of this section. In the case of a religious institution (other than a church) and a nonprofit educational organization, information shall be furnished showing that the institution or organization is exempt from income tax as an institution or organization described in section 501(c)(3) of the Internal Revenue Code (or the corresponding provisions of prior revenue laws).

(f) Evidence of tax-free sale. The purchaser shall note on the purchase order, exemption certificate, or other document furnished to the seller by the purchaser the exempt purpose for which the article or articles are being purchased and the registration number assigned to the purchaser, or if the purchaser has registered as provided in subparagraph (2) of paragraph (e) of this section and does not have a registration number, the date of such registration and the district director with whom registered. For purposes of this paragraph, where tax-free sales are regularly or frequently made to a purchaser, an exemption certificate covering all orders for a specified period not to exceed four calendar quarters will be acceptable.

(g) Failure to register. If either the seller or purchaser is not registered as provided in paragraph (e) of this section, tax-free sale for any of the purposes specified in paragraph (b) of this section may not be made, except as indicated in paragraph (i) of this section. Where tax is paid but the article is used or resold for use for an exempt purpose, a claim for refund may be filed on Form 843, or credit taken on a subsequent return, in accordance with the provisions of sections 6402(a) or 6416, as the case may be.

(h) Duty of seller to ascertain use of registration or exemption certificate. A manufacturer or reseller making a sale for a tax-free purpose as provided by this section must use reasonable diligence to satisfy himself that the tax-free sale is warranted by law. If the manufacturer has knowledge at the time of his sale that the article sold by him is not intended for use or resale as indicated by the purchaser, the manufacturer is liable for the tax and is not relieved of liability by reason of the registration of the purchaser or the furnishing of an exemption certificate or statement by the purchaser.

(i) Exceptions to the requirement for registration -- (1) State and local governments. A State or local government purchasing articles direct from the manufacturer for its exclusive use may, but is not required to, register as provided in this section of the regulations. To establish the right to sell articles tax free to a State or local government which is not registered, the manufacturer must comply with the provisions of 314.24 of Regulations 44 (26 CFR (1939) Part 314) and 316.24 of Regulations 46 (26 CFR (1939) Part 3161014), as prescribed under and made applicable to the Internal Revenue Code of 1954 by Treasury Decision 6091, 19 FR 5167, August 17, 1954.

(2) Sales or resales for export to foreign purchaser. In the case of sales for export or for resale for export, where the first purchaser or the second purchaser is located in a foreign country or possession of the United States, such purchaser is not required to register as provided in paragraph (e) of this section. To establish the right to sell articles tax free for export to a purchaser who is not registered and who is located in a foreign country or a possession of the United States, the manufacturer must obtain from such purchaser the information required in 314.25 of Regulations 44 (26 CFR (1939) Part 314) and 316.25 of Regulations 46 (26 CFR (1939) part 316). For requirements as to proof of exportation see section 4221(b).

(3) Sales of mechanical pencils, fountain pens, and ball point pens for export. A manufacturer of mechanical pencils, fountain pens, and ball point pens and a purchaser of these articles may not register under the provisions of these regulations in order to sell or purchase these articles tax free for export or for resale for export. To establish the right to sell mechanical pencils, fountain pens, and ball point pens tax free for export or for resale by the purchaser to a second purchaser for export, the manufacturer must comply with the provisions of 316.25 of Regulations 46 (26 CFR (1939) Part 316). For requirements as to proof of exportation see section 4221(b).

(4) United States. The registration requirements of this section do not apply to purchases and sales by the United States. The United States or any of its agencies or instrumentalities may purchase and sell taxable articles for any of the exempt purposes specified in paragraph (b) of this section provided the purchase order or other document relating to such purchases clearly indicates that the articles are being purchased tax free as authorized by Chapter 32 of the Code.

(j) Revocation or suspension of registration -- (1) Revocation or suspension by district director or Director of Internaitional Operations. Except as provided in subparagraph (2) of this paragraph, the district director or the Director of International Operations, as the case may be, is authorized to revoke or temporarily suspend the registration of any person and the right of such person to sell or purchase articles tax-free under section 4221 of the Code (or under any section specified in section 4222(d) to which the provisions of section 4222 have been extended) in any case in which he finds that:

(i) The registrant is not a bona fide manufacturer, or a purchaser reselling direct to manufacturers or exporters;

(ii) The registrant is for some other reason (including a change in the law relating to an exemption to which section 4222 applies) not eligible to retain a certificate of registry;

(iii) The registrant has unlawfully used his registration to avoid the payment of any tax imposed by Chapter 32 of the Code, or to postpone or interfere in any manner with the collection of such tax;

(iv) Such revocation or suspension is necessary to protect the revenue; or

(v) The registrant failed to comply with the requirements of paragraph (f) of this section, relating to evidence required in support of a tax-free sale.

Written notice of such revocation or suspension shall be sent by mail to the registrant's last known address. Such notice shall specify the grounds for the revocation or suspension and state the effective date of revocation or suspension. Notwithstanding the provisions of paragraph (e) (1) or (2) of this section, any person whose registration is revoked or suspended must reregister in accordance with the provisions of paragraph (e)(3) of this section before selling or purchasing articles tax free on or after the effective date of revocation or suspension. The revocation or suspension of registration is in addition to any penalty which may apply under the law for any act or failure to act.

(2) Blanket revocation and reregistration. The Commissioner is authorized to revoke the registration of every person and the right of every person to sell or purchase articles tax free under section 4221 of the Code (or under any section specified in section 4222(d) to which the provision of section 4222 have been extended) when he finds that a blanket revocation is necessary to protect the revenue. Notice of blanket revocation shall be given by publication of such notice in the Internal Revenue Bulletin at least 6 months prior to the effective date of revocation. Notwithstanding the first sentence of this paragraph, the published notice may specify that the blanket revocation is to apply only to registrations made prior to a particular date provided in such notice, and may limit application of the blanket revocation to a defined group or classification of persons who are registered to sell or purchase tax free under any exemption provision to which section 4222 applies. In any case, persons registering during the period beginning with the date of publication of notice of revocation and ending with the effective date shall be excluded from the blanket revocation. Notwithstanding the provisions of paragraph (e) (1) or (2) of this section, persons who are affected by the blanket revocation shall be required to reregister in accordance with the provisions of paragraph (e) (3) of this section before selling or purchasing articles tax free on or after the effective date of revocation.

(T.D. 6344, 23 FR 10345, Dec. 25, 1958, as amended by T.D. 6463, 25 FR 4166, May 11, 1960; T.D. 6574, 26 FR 9577, Oct. 11, 1961; T.D. 7268, 38 FR 9227, Apr. 12, 1973)

0141See Appendix to Subchapter D.

26 CFR 148.1-4 Tax-free sales or services to certain nonprofit educational organizations.

(a) In general. Sales to, or facilities or services furnished, a nonprofit educational organization, as defined in paragraph (b), are not subject to the tax imposed by:

(1) Chapter 31 of the Internal Revenue Code of 1954, relating to retailers excise taxes.

(2) Chapter 32 of the Internal Revenue Code of 1954, relating to manufacturers excise taxes,

(3) Section 4251 of the Internal Revenue Code of 1954, relating to the tax on communication services or facilities, or

(4) Section 4261 of the Internal Revenue Code of 1954, relating to the tax imposed upon the transportation of persons.

(b) Definition of nonprofit educational organization. The term ''non-profit educational organization'' means an organization exempt from income tax under section 501(a) of the Internal Revenue Code of 1954 whose primary function is the presentation of formal instruction and which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. The term also includes a school operated as an activity of an organization described in section 501(c) (3) which is exempt from income tax under section 501(a), provided such school normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.

(c) Retailers excise taxes -- (1) Exemption. Section 4057 of the Code provides an exemption from the retailers excise tax with respect to the sale after December 31, 1958, of any article, including liquid fuel referred to in section 4041 of the Code, to a nonprofit educational organization, as defined in paragraph (b), for its exclusive use. In addition section 4057 provides an exemption from the tax on the use of liquid fuel imposed by section 4041 with respect to the use after such date by a nonprofit educational organization of such liquid fuel. In the case of a school operated as an activity of an organization described in section 501(c)(3), referred to in paragraph (b) of this section, the sale must be for the exclusive use of such school, or in the case of liquid fuel, such liquid fuel must be used by such school.

(2) Evidence required to establish tax-free sales to a nonprofit educational organization; general rule. (i) Except as provided in subparagraph (3) of this paragraph, to establish the right to exemption under section 4057 the retailer must obtain from the purchaser and retain in his possession a properly executed exemption certificate as set forth in paragraph (h)(1) of this section. Such certificate shall show that the organization has received a determination letter from a district director or a ruling from the Commissioner holding the organization to be exempt from income tax as an organization described in section 501(c)(3) or that it has received such determination letter or ruling under the corresponding provisions of prior revenue laws. The exemption certificate must also show the date of such determination letter or ruling and that such determination letter or ruling is still in effect and has not been withdrawn or revoked. Unless exemption from income tax has been established by such a determination letter or ruling, the retailer does not have the right to make tax-free sales. The organization, in order to enable the retailer to establish his right to sell tax free, shall apply to the district director for the district in which its principal office is located for a determination of its status. Application for a determination should be made by filing Form 1023 with such district director. Copies of the form and instructions as to the appropriate procedure to be followed in filing it may be obtained from the appropriate district director.

(ii) The exemption certificate must also include a statement that the organization (or the school operated as an activity of an organization which has such a determination letter or ruling) normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.

(3) Evidence required to establish tax-free sales to a school operated as an activity of a church, parish, or other religious body. (i) In the case of sales to a school operated as an activity of a church, parish, or other religious body, to establish the right to exemption under section 4057, the retailer must obtain from the purchaser and retain in his possession a properly executed exemption certificate as set forth in paragraph (h)(2) of this section. Such certificate shall show that the purchaser is either:

(a) A school operated as an activity of a church, parish, or other religious body within the meaning of section 503(b)(1); or

(b) A church, parish, or other religious body within the meaning of section 503(b)(1) which operates a school as one of its activities,

and that the purchase is for the exclusive use of that school.

(ii) The exemption certificate must also include a statement that such school normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.

(4) Frequency of certificates. Where only occasional sales are made by a retailer to a nonprofit educational organization, as defined in paragraph (b) of this section a separate exemption certificate should be furnished for each order. However, where sales by the retailer to the educational organization are regularly or frequently made, a certificate covering all orders for a specified period not to exceed 4 calendar quarters will be acceptable. Such certificate and proper records of invoices, orders, etc., relative to tax-free sales must be readily accessible for inspection by internal revenue officers and retained as provided in section 6001 of the Code and the regulations thereunder.

(5) Exemption certificate. (i) For form of certificates for exemption from retailers excise taxes for use by a nonprofit educational organization other than a school operated as an activity of a church, parish, or other religious body, see paragraph (h)(1) of this section.

(ii) For form of certificates for exemptions from retailers excise taxes for use by a school operated as an activity of a church, parish, or other religious body, see paragraph (h)(2) of this section.

(6) Prima facie evidence of exempt use. In the absence of circumstances indicating a different use, the exemption certificate procured by the retailer from the purchasing nonprofit educational organization will be acceptable as prima facie evidence that the ariticle is purchased for the exclusive use of such organization.

(7) Exemption certificate not obtained prior to filing of retailer's excise tax return. If the sale is otherwise exempt but the exemption certificate is not obtained prior to the time the retailer files a return covering taxes due for the period in which the sale was made, the retailer must include the tax on such sale in his return for that period. However, if the certificate is later obtained, a credit may be taken on a subsequent return or a claim for refund of the tax paid on such sale may be filed on Form 843, within the period of limitation prescribed by section 6511(b) of the Code and 301.6511(b)-1 of this chapter.

(d) Manufacturers excise taxes -- (1) Exemption. Section 4221(a)(5) of the Code provides an exemption from the manufacturers excise tax with respect to the sale after December 31, 1958 of an article by the manufacturer, producer, or importer thereof to certain nonprofit educational organizations, as defined in paragraph (b) of this section, for their exclusive use. However, the exemption authorized by that section does not apply with respect to the sale of any article unless both the manufacturer, producer, or importer and the nonprofit educational organization are registered as provided in 148.1-3 of these temporary rules. See such section of these temporary rules for the requirements relating to the tax-free sale of articles subject to the manufacturers excise tax to a nonprofit educational organization for its exclusive use.

(e) Communication services or facilities furnished to nonprofit educational organizations -- (1) Exemption. Under the provisions of section 4294(a) of the Code, amounts paid after December 31, 1958, for communication services or facilities furnished to a nonprofit educational organization, as defined in paragraph (b) of this section, are exempt from the tax imposed by section 4251, if such amounts are paid by such organization. In the case of a school operated as an activity of an organization described in section 501(c)(3), which is exempt from income tax, the exemption from the communications tax only applies to the amount paid for services or facilities which are for the exclusive use of the school.

(2) Exemption certificate for payments made by a nonprofit educational organization. (i) A nonprofit educational organization shall establish its right to exemption by properly executing and furnishing to the person providing the service or facility and exemption certificate. No additional exemption certificates are required where payment for services or facilities furnished is made by such organization from its funds direct to such person.

(ii) For form of certificates for exemption from communications taxes for use by a nonprofit educational organization other than a school operated as an activity of a church, parish, or other religious body, see paragraph (h)(3) of this section.

(iii) For form of certificates for exemption from communications taxes for use by a school operated as an activity of a church, parish, or other religious body, see paragraph (h)(4) of this section.

(3) Exemption certificate for payments made by a person other than a nonprofit educational organization. (i) In all cases where payment is made for communication services or facilities furnished to a nonprofit educational organization by a person other than such nonprofit educational organization but for which he is reimbursed by such organization, the right to exemption shall be evidenced by properly executed exemption certificates. An agent of a telegraph, telephone, radio, or cable company should not accept an exemption certificate unless satisfied, on the basis of proper credentials or otherwise, that the person who signed it is the person whom he represents himself to be and that the exemption claimed is allowable under the law. A separate exemption certificate will be required for each message paid for as a separate item, but where periodic payments are made, a blanket certificate (for a period not to exceed one month) may be accepted as evidence of the right to exemption.

(ii) For form of certificates for exemption from communications taxes for use on behalf of a nonprofit educational organization other than a school operated as an activity of a church, parish, or other religious body, see paragraph (h)(3) of this section.

(iii) For form of certificates for exemption from communications taxes for use on behalf of a school operated as an activity of a church, parish, or other religious body, see paragraph (h)(4) of this section.

(f) Exemption from tax on the transportation of persons -- (1) In general. Under the provisions of section 4294(a), the tax imposed by section 4261 shall not apply to amounts paid after December 31, 1958 by a nonprofit educational organization, as defined in paragraph (b) of this section, for the transportation of persons or for seating or sleeping accommodations furnished to such organization. Amounts paid for transportation or facilities by an officer, employee, or student of such nonprofit educational organization who is traveling on a mileage or other allowance basis are exempt from tax where reimbursement is made to such officer, employee, or student by such nonprofit educational organization. In the case of a school operated as an activity of an organization described in section 501(c) (3) which is exempt from income tax, the exemption from the tax on the transportation of persons only applies to amounts paid for such transportation of persons rendered for the exclusive benefit of such school.

(2) Evidence of right to exemption. (i) The right to exemption from the tax on the transportation of persons shall be established by the use of exemption certificates. A separate certificate must be furnished with respect to each amount paid for transportation or for seating or sleeping accommodations furnished in connection therewith. Where a nonprofit educational organization, as defined in paragraph (b) of this section, purchases transportation or facilities for a group of persons, as in the case of a college football team using transportation facilities to travel to the site of a game away from home, one certificate covering the total amount paid may be accepted by the carrier. Where such organization makes periodic payments for transportation or facilities furnished officers, employees, or students of such organization, one certificate covering the total amount paid at any one time may be accepted by the carrier. One exemption certificate covering a number of separate payments may not be accepted by the carrier. Each person claiming exemption from the tax must identify himself by presenting credentials in the form of papers, documents, or other evidence which will reasonably assure the agent of the carrier collecting a payment that he is the person covered by the exemption certificate furnished on behalf of the nonprofit educational organization. The exemption certificate must be submitted to the carrier at the time the payment for transportation or facilities is made.

(ii) For form of certificates for exemption from taxes on the transportation of persons for use by a nonprofit educational organization other than a school operated as an activity of a church, parish, or other religious body, see paragraph (h)(5) of this section.

(iii) For form of certificates for exemption from taxes on the transportation of persons for use by a school operated as an activity of a church, parish, or other religious body, see paragraph (h)(6) of this section.

(g) Retention of exemption certificates. The exemption certificates required under paragraphs (c), (e), and (f) of this section shall be retained by the retailer, carrier, or communications facility, together with the record of the goods sold, the services rendered, or the facilities furnished, and made available for inspection by internal revenue officers for a period of at least three years from the date the tax would have become due, if payable.

(h) Forms of exemption certificates. The following forms of exemption certificates will be acceptable for the purposes of this section and must be adhered to in substance:

(1) Form of certificate for exemption from retailers excise taxes for use by a nonprofit educational organization other than a school operated as an activity of a church, parish, or other religious body:

Exemption Certificate

(For use by a nonprofit educational organization purchasing articles subject to retailers excise tax for its exclusive use)

-------------- , 19 --

(Date)

The undersigned hereby certifies that he is --------------

(Title) of ------------------------ (Exempt organization); that he is authorized to execute this certificate; and that the articles specified in the accompanying order or on the reverse side hereof are purchased by such organization exclusively for use in its educational activities.

It is understood that this exemption certificate is for use only by a nonprofit educational organization in the tax-free purchase for its exclusive use of articles subject to the retailers excise tax; or by an organization exempt from income tax described in section 501(c)(3) of the Code in the tax-free purchase of any such article for the exclusive use of its school which qualifies for the exemption; and it is agreed that if any article purchased tax free under this exemption certificate is used otherwise, such fact will be reported to the retailer from whom the tax-free purchase was made.

The organization claiming exemption under this certificate has received a determination letter (or a ruling) from the Internal Revenue Service holding the organization to be exempt from income tax as an organization described in section 501(c)(3) of the Internal Revenue Code (or has received a determination letter (or ruling) under the corresponding provisions of prior revenue laws). The date of such determination letter (or ruling) is ---------- and such determination letter (or ruling) has not been withdrawn or revoked.

The exempt organization, or the school operated as an activity of the exempt organization, normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.

The undersigned understands that the fraudulent use of this certificate for the purpose of securing this exemption will subject him and all guilty parties to a fine of not more than $10,000, or to imprisonment for not more than five years, or both, together with costs of prosecution.

(Signature of authorized individual)

(Address)

(2) Form of certificate for exemption from retailers excise taxes for use by a school operated as an activity of a church, parish, or other religious body:

Exemption Certificate

(For use by or for a school operated as an activity of a church, parish, or other religious body in purchasing articles subject to retailers excise tax for the exclusive use of the school)

---------- , 19 --

(Date)

The undersigned hereby certifies that he is --------------

(Title) of ------------------------ (School, church, parish, etc.); that he is authorized to execute this certificate; and that the articles specified in the accompanying order or on the reverse side hereof are purchased by such institution exclusively for use in its educational activities.

It is understood that this exemption certificate is for use only by a school operated as an activity of a church, parish, or other religious body in the tax-free purchase for its exclusive use of articles subject to the retailers excise tax; or by a church, parish, or other religious body in the tax-free purchase of any such article for the exclusive use of its school which qualifies for the exemption; and it is agreed that if any article purchased tax free under this exemption certificate is used otherwise, such fact will be reported to the retailer from whom the tax-free purchase was made.

The school operated as an activity of the church, parish, or other religious body normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.

The undersigned understands that the fraudulent use of this certificate for the purpose of securing this exemption will subject him and all guilty parties to a fine of not more than $10,000, or to imprisonment for not more than five years, or both, together with costs of prosecution.

(Signature of authorized individual)

(Address)

(3) Form of certificate for exemption from communications taxes for use by or on behalf of a nonprofit educational organization other than a school operated as an activity of a church, parish, or other religious body:

Exemption Certificate

(For use by or on behalf of a nonprofit educational organization exempt from communications tax)

---------- , 19 --

(Date)

The undersigned hereby certifies that he is -------------- of (Title or capacity) of ---------------- (Exempt organization); that he is authorized to execute this certificate; and that the communication services or facilities furnished or to be furnished to the organization by ---------------- (Telephone, telegraph company, etc.) will be paid for from funds of the organization and are for the exclusive use of the organization in the educational activities which qualify it for exemption from tax under section 4294 of the Internal Revenue Code.

The organization claiming exemption under this certificate has received a determination letter (or a ruling) from the Internal Revenue Service holding the organization to be exempt from income tax as an organization described in section 501(c) (3) of the Internal Revenue Code (or has received such determination letter (or ruling) under the corresponding provisions of prior revenue laws). The date of such determination letter (or ruling) is ------------ and such determination letter (or ruling) has not been withdrawn or revoked.

The exempt organization normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.

The undersigned understands that the fraudulent use of this certificate for the purpose of securing this exemption will subject him and all guilty parties to a fine of not more than $10,000, or to imprisonment for not more than five years, or both, together with costs of prosecution.

(Signature of authorized individual)

(Address)

(4) Form of certificate for exemption from communications taxes for use by or on behalf of a school operated as an activity of a church, parish, or other religious body:

Exemption Certificate

(For use by or on behalf of a school operated as an activity of a church, parish, or other religious body for exemption from communications tax)

---------- , 19 --

(Date)

The undersigned hereby certifies that he is ---------------- (Title or capacity) of ---------------- (School, church, parish, etc.); that he is authorized to execute this certificate; and that the communication services or facilities furnished or to be furnished to the institution by ---------------- (Telephone, telegraph company, etc.) will be paid for from the funds of the institution and are for the exclusive use of the school.

The school operated as an activity of the church, parish, or other religious body normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.

The undersigned understands that the fraudulent use of this certificate for the purpose of securing this exemption will subject him and all guilty parties to a fine of not more than $10,000, or to imprisonment for not more than five years, or both, together with costs of prosecution.

(Signature of authorized individual)

(Address)

(5) Form of certificate for exemption from taxes on the transportation of persons for use by or on behalf of a nonprofit educational organization other than a school operated as an activity of a church, parish, or other religious body:

Exemption Certificate

(For use by or on behalf of a nonprofit educational organization exempt from the tax on the transportation of persons)

---------- , 19 --

(Date)

Place of issue of ticket(s)

Ticket Form No. (s) ------ Ticket No.(s) ------ (To be filled in by agent of carrier issuing ticket)

For (Transportation -- seat, berth, or stateroom)

Via

From

To

The undersigned hereby certifies that he is ---------------- (Title or capacity) of ---------------- (Exempt organization) that he is authorized to execute this certificate; and that the transportation furnished or to be furnished to the organization by

(Name of carrier)

will be paid for form funds of the organization and is for the exclusive use of the organization in the educational activities which qualify it for exemption from tax under section 4294 of the Internal Revenue Code.

The organization claiming exemption under this certificate has received a determination letter (or a ruling) from the Internal Revenue Service holding the organization to be exempt from income tax as an organization described in section 501(c)(3) of the Internal Revenue Code (or has received such determination letter (or ruling) under the corresponding provisions of prior revenue laws). The date of such determination letter (or ruling) is ---------- and such determination letter (or ruling) has not been withdrawn or revoked.

The exempt organization normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.

The undersigned understands that the fraudulent use of this certificate for the purpose of securing this exemption will subject him and all guilty parties to a fine of not more than $10,000, or to imprisonment for not more than five years, or both, together with costs of prosecution.

(Signature of authorized individual)

(Address)

(6) Form of certificate for exemption from taxes on the transportation of persons for use by or on behalf of a school operated as an activity of a church, parish, or other religious body:

Exemption Certificate

(For use by or on behalf of a school operated as an activity of a church, parish or other religious body for exemption from tax on the transportation of persons)

---------- , 19 --

(Date)

Place of issue of ticket(s)

Ticket Form No.(s) ------ Ticket No.(s) ------ (To be filled in by agent of carrier issuing ticket)

For

(Transportation -- seat, berth, or stateroom)

Via

From

To

The undersigned hereby certifies that he is ---------------- (Title or capacity) of ---------------- (School, church, parish, etc.) that he is authorized to execute this certificate; and that the transportation furnished or to be furnished to the institution by

(Name of carrier)

will be paid for from the funds of the institution and is for the exclusive use of the school.

The school operated as an activity of the church, parish, or other religious body normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.

The undersigned understands that the fraudulent use of this certificate for the purpose of securing this exemption will subject him and all guilty parties to a fine of not more than $10,000, or to imprisonment for not more than five years, or both, together with costs of prosecution.

(Signature of authorized individual)

(Address)

Because the provisions of law under which these temporary rules are prescribed become effective on January 1, 1959, and because it is essential that rules implementing these provisions of law be in effect on such date, it is found impracticable to issue this Treasury decision with notice and public procedure thereon under section 4(a) of the Administrative Procedure Act, approved June 11, 1946, or subject to the effective date limitation of section 4(c) of that Act.

(T.D. 6344, 23 FR 10346, Dec. 25, 1958)

26 CFR 148.1-5 Constructive sale price.

(a) Purpose of this section. The purpose of this section is to set forth temporary rules to be used in determining a constructive sale price under section 4216(b) of the Internal Revenue Code, as amended by section 115 of the Excise Tax Technical Changes Act of 1958, with respect to certain sales made on and after January 1, 1959, by a manufacturer, producer, or importer. The temporary rules set forth in this section have application in the case of articles in respect of which the manufacturer's excise tax imposed under Chapter 32 of the Code is based on the price for which the article is sold.

(b) General rule -- (1) Sales at retail. Where a manufacturer, producer, or importer sells an article at retail, and the special rule provided in paragraph (c) of this section does not apply, the basis for tax shall be the lower of: (i) the actual price for which the article is sold; or (ii) the highest price for which such articles are sold to wholesale distributors, in the ordinary course of trade, by manufacturers or producers thereof. Thus, where a manufacturer, producer, or importer sells an article at retail, the tax on his retail sale ordinarily will be computed upon the highest price for which similar articles are sold by him to wholesale distributors. However, in such cases it must be shown that he has an established bona fide practice of selling such articles in substantial quantities to wholesale distributors. If he has no such sales to wholesale distributors, a fair market price will be determined by the Commissioner. In any case the price so determined shall not be in excess of the actual price for which the article is sold by him at retail.

(2) Sales on consignment and sales otherwise than through an arm's length transaction. For rules relating to the determination of a constructive sale price in the case of sales on consignment, or sales otherwise than through an arm's length transaction and at less than the fair market price, see paragraphs (a) and (d) of 316.15 of Regulations 46 (26 CFR (1939) Part 316), as prescribed under and made applicable to the Internal Revenue Code of 1954 by Treasury Decision 6091, 19 FR 5167, August 17, 1954.

(c) Special rule -- (1) Basis for tax. Where a manufacturer, producer, or importer sells an article at retail, to a retailer, or to a special dealer, and the conditions specified in subparagraph (2) of this paragraph are met, a special constructure sale price rule is provided for computation of the tax. This rule provides that the tax is to be based on the lower of the following prices: (i) The actual price for which the article is sold; or (ii) the highest price for which such articles are sold by such manufacturer, producer, or importer to wholesale distributors (other than special dealers).

(2) Conditions governing applicability of special rule. In order to qualify for application of the special constructive sale price rule to the sale by the manufacturer, producer, or importer of an article at retail, to a retailer, or to a special dealer, the following four conditions must be satisfied.

(i) The manufacturer, producer, or importer of the article must regularly sell such articles at retail, to retailers, or to special dealers, as the case may be.

(ii) The manufacturer, producer, or importer of the article must regularly sell such articles to one or more wholesale distributors (other than special dealers) in arm's length transactions, and must establish that his prices in such cases are determined without regard to any tax benefit under this paragraph resulting from a reduction in the tax base for his sales at retail, to retailers, or to special dealers.

(iii) The normal method of sales within the industry embracing the article is not to sell at retail, or to retailers, or both.

(iv) The sale at retail, to a retailer, or to a special dealer must be an arm's length transaction.

(3) Requests for determination. In any case in which a manufacturer, producer, or importer desires a determination as to the application of this paragraph, he may request such a determination from the Commissioner. The request shall contain complete and detailed information with respect to each of the conditions specified in subparagraph (2) of this paragraph to assist the Commissioner in determining whether the constructive sale price provisions of this paragraph apply, such as data which will show the normal method of sales for the article within the industry by manufacturers, producers, and importers (including the dollar volume of sales at various distribution levels), and the source of such data; evidence as to the regularity with which sales of such articles are made by the manufacturer, producer, or importer at retail, to retailers, or to special dealers; information that the prices of the manufacturer, producer, or importer to wholesale distributors have been determined without regard to any tax benefit under the special rule of this paragraph; etc.

(d) Definitions. For purposes of this section:

(1) Wholesale distributors. The term ''wholesale distributors'' means persons who customarily resell to others who in turn resell.

(2) Special dealer. The term ''special dealer'' means a distributor of articles taxable under section 4121 (relating to electric, gas, and oil appliances) who does not maintain a sales force to resell the article whose constructive sale price is established under paragraph (c) of this section but relies on salesmen of the manufacturer, producer, or importer of the article for resale of the article to retailers.

(3) Industry. (i) The term ''industry'' as applied to any article generally means the specific category of articles listed in Chapter 32 of the Internal Revenue Code (other than combinations) that embraces the article for which a constructive sale price is to be determined under paragraph (c) of this section. For the rule applicable to combinations of two or more articles, see subdivision (iv) of this subparagraph.

(ii) The following are examples of categories of taxable articles which comprise separate industries:

(a) Taxable electric flatirons;

(b) Taxable electric, gas, and oil appliances of the type used for cooking, warming, or keeping warm food or beverages for consumption on the premises;

(c) Taxable electric direct-motor and belt-driven fans and air circulators;

(d) Taxable electric, gas, and oil incinerator units and garbage disposal units;

(e) Taxable electric light bulbs and tubes;

(f) Taxable radio receiving sets;

(g) Taxable automobile radio receiving sets;

(h) Taxable radio and television components;

(i) Taxable musical instruments;

(j) Taxable fishing rods, creels, reels and artificial lures, baits, and flies;

(k) Taxable golf bags, balls and clubs;

(l) Taxable cameras;

(m) Taxable unexposed photographic film in rolls (including motion picture film);

(n) Taxable check writing, signing, cancelling, perforating, cutting, and dating machines, and other check protector machine devices;

(o) Taxable cash registers; and

(p) Taxable mechanical pencils, fountain pens and ball point pens.

(iii) With respect to the tax imposed by section 4061, the following categories of articles are to be considered separate industries:

(a) Taxable automobile trucks (consisting of automobile truck bodies and chassis);

(b) Taxable automobile buses (consisting of automobile bus bodies and chassis);

(c) Taxable truck and bus trailers and semitrailers (consisting of chassis and bodies of such trailers and semitrailers);

(d) Taxable tractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer;

(e) All other taxable automobile chassis and bodies;

(f) Taxable trailer and semitrailer chassis and bodies suitable for use in connection with passenger automobiles; and

(g) Taxable automobile parts and accessories.

(iv) With respect to an article which is:

(a) Taxable as ''Combinations of household type refrigerators and quickfreeze units'' under section 4111,

(b) Taxable as ''Combinations of any of the foregoing'' under sections 4141 and 4191, or

(c) A combination, other than a combination referred to in (a) or (b) of this subdivision, of articles taxable under the same section or different sections of Chapter 32 of the Code.

The industry test required by paragraph (c)(2)(iii) of this section for such article shall be met if such test is met for the article or articles which comprise more than 50 percent in value of the combination. In case of a combination consisting of a taxable article and a nontaxable article, the category for the taxable article in the combination shall constitute the industry for purposes of paragraph (c)(2)(iii) of this section.

(T.D. 6355, 24 FR 311, Jan. 14, 1959)

26 CFR 148.1-5 PART 150 -- TEMPORARY EXCISE TAX REGULATIONS UNDER THE CRUDE OIL WINDFALL PROFIT TAX ACT OF 1980

Sec.

150.0 Introduction.

150.4986-1 Imposition of tax.

150.4987-1 Amount of tax.

150.4988-1 Windfall profit; removal price.

150.4989-1 Adjusted base price.

150.4991-1 Taxable crude oil; tiers of oil.

150.4992-1 Independent producer oil.

150.4993-1 Incremental tertiary oil.

150.4993-2 Self-certification of tertiary recovery projects.

150.4993-3 Jurisdictional agency certification of tertiary recovery projects.

150.4993-4 Internal Revenue Service rulings relating to qualified tertiary recovery projects.

150.4994-1 Exemptions.

150.4995-1 Requirement of withholding.

150.4995-2 Producer's certificate.

150.4995-3 Depositary requirements.

150.4995-4 Election of purchaser and operator to have operator withhold, deposit tax, etc.

150.4995-5 Election of qualified disburser to withhold, deposit tax, etc.

150.4996-1 Definitions.

150.4996-2 Severance tax adjustment.

150.4996-3 Special rules for post-1978 transfers of property.

150.4997-1 Returns and recordkeeping.

150.4997-2 Certain information to be furnished by purchaser and others.

150.6050C-1 Information furnished by operator for purposes of windfall profit tax.

150.6076-1 Time for filing return of windfall profit tax.

150.6232(c)-1 Partnership authorized to act on behalf of partners for removal year 1983 or 1984.

150.6232(c)-2 Election to act on behalf of partners for removal year 1983 or 1984.

150.6232(c)-3 ''5-percent'' election for removal year 1983 or 1984.

150.6232(c)-4 Individual election for removal year 1983 or 1984.

150.6232(c)-5 Partner responsibility when partnership authority is negated for removal year 1983 or 1984.

150.6402-1 Credit or refund of overpayment of windfall profit tax.

Authority: 26 U.S.C. 4992, 4993, 4995, 4996, 4997, 6050C, 6402, and 7805 and sec. 101(i)(2) of the Crude Oil Windfall Profit Tax Act of 1980.

Source: T.D. 7690, 45 FR 23387, Apr. 4, 1980, unless otherwise noted.

26 CFR 150.0 Introduction.

Each section of the regulations in this part is designated by a number composed of the part number followed by a decimal point (150.) the section of the Internal Revenue Code of 1954 to which it relates, a hyphen (-) and a number identifying the section. By use of these designations, the reader can associate sections of the regulations with provisions of the Code. For example, 150.4986-1 pertains to section 4986 of the Code.

26 CFR 150.4986-1 Imposition of tax.

Section 4986 imposes an excise tax on the windfall profit from taxable crude oil removed from the premises on or after March 1, 1980, and before the end of the phaseout period. See 150.4988-1, 150.4991-1, and 150.4996-1 for the definitions of ''windfall profit'', ''taxable crude oil'', and ''removed from the premises'', respectively. See section 4990(c) for the definition of ''phaseout period''. The tax imposed by section 4986 is to be paid by the producer of the crude oil. However, see 150.4995-1, relating to the requirement of withholding by the purchaser of the crude oil. See 150.4996-1 for the definitions of ''purchaser'' and ''producer''.

26 CFR 150.4987-1 Amount of tax.

Section 4987 establishes that the amount of tax imposed by section 4986 with respect to any barrel of taxable crude oil is the applicable percentage of the windfall profit on that barrel. The applicable percentage for tier 1 oil and tier 2 oil which is not independent producer oil is 70 in the case of tier 1 and 60 in the case of tier 2. The applicable percentage for independent producer oil is 50 for tier 1 and 30 for tier 2. The applicable percentage for tier 3 oil is 30. In the case of a fraction of a barrel, the tax is the same fraction of the amount of the tax imposed on the whole barrel.

26 CFR 150.4988-1 Windfall profit; removal price.

(a) Windfall profit. For purposes of this part and Chapter 45 of the Code, the term ''windfall profit'' means the excess of the removal price of the barrel of crude oil over the sum of:

(1) The adjusted base price of the barrel, and

(2) The amount of the severance tax adjustment with respect to the barrel provided by section 4996(c) and 150.4996-2.

Section 4988(b) provides that the windfall profit on any barrel of crude oil shall not exceed 90 percent of the net income attributable to the barrel. The computation of the net income limitation is determined under special rules set forth in section 4988(b).

(b) Removal price -- (1) In general. The ''removal price'' generally is the amount for which the barrel is sold to the purchaser (including any adjustments to the sales price made after sale). However, in the case of a sale between related persons (within the meaning of section 103(b)(6)(C)), the removal price shall not be less than the constructive sales price for purposes of determining gross income from the property under section 613. Also, if crude oil is removed from the premises before it is sold (or is deemed removed under section 4988(c)(4) or 150.4996-1(d)), the removal price shall be the constructive sales price for purposes of determining gross income from the property under section 613.

(2) Alaskan oil from Sadlerochit reservoir. In the case of Sadlerochit oil, the removal price of such oil removed during any calendar month shall be the average of the producer's removal prices for such month.

(3) District director's authority. In determining the removal price of oil from a property in the case of any transaction, a district director may adjust the removal price to reflect clearly the fair market value of oil removed.

(Secs. 4995, 4996, 4997, 6050C, 6109, and 7805 of Title 26 of the United States Code (94 Stat. 244, 247, 249-250, and 251, 75 Stat. 828 and 68A Stat. 917; 26 U.S.C. 4995, 4996, 4997, 6050C, 6109, and 7805))

(T.D. 7690, 45 FR 23387, Apr. 4, 1980, as amended by T.D. 7755, 45 FR 4876, Jan. 19, 1981)

26 CFR 150.4989-1 Adjusted base price.

(a) Adjusted base price defined. For purposes of this part and Chapter 45 of the Code, the ''adjusted base price'' is the base price for the barrel of crude oil plus the amount equal to the base price multiplied by the inflation adjustment for the calendar quarter in which the crude oil is removed from the premises, rounded to the nearest cent. The inflation adjustment, which is determined under a formula set out in section 4989(b), is greater for tier 3 oil than it is for tier 1 oil or tier 2 oil. For March 1980, the inflation adjustment is .0195 in the case of tier 1 or tier 2 oil and .0246 in the case of tier 3 oil. Future inflation adjustments will be published periodically by the Internal Revenue Service. For a special adjustment to the base price for Alaskan oil from the Sadlerochit reservoir, see section 4996(d).

(b) Base price for tier 1 oil. The base price for tier 1 oil is the ceiling price which would have applied to the oil under the March 1979 energy regulations (see 150.4996-1(f)) if it had been produced and sold in May 1979 as upper tier oil, reduced by 21 cents. For purposes of this determination, the grade and quality of the oil produced from the property in May 1979 shall be used.

(c) Base prices for tier 2 and tier 3 oil.

(1)-(7) (Reserved)

(8) Interim rule. (i) This subparagraph applies to oil removed during a month before October 1980. Except as provided in paragraph (c)(8)(ii) of this section, the base prices for tier 2 oil and tier 3 oil, respectively, shall be the product of:

(A) The highest posted price for December 31, 1979, for uncontrolled crude oil of the same grade, quality, and field, or, if there is no such posted price, the highest posted price for such date for uncontrolled crude oil at the nearest domestic field for which prices for oil of the same grade and and quality were posted for such date, multiplied by

(B) A fraction the denominator of which is $35, and the numerator of which is $15.20 for purposes of determining base prices of tier 2 oil and $16.55 for purposes of determining base prices of tier 3 oil.

In determining the base price for tier 2 or tier 3 oil, the grade and quality of the oil produced in December 1979 shall be used. For purposes of determining the highest posted price for December 31, 1979, ''posted price'' means a written statement of crude oil prices constituting an offer to purchase oil at that price circulated publicly among sellers and buyers of crude oil in a particular field in accordance with historic practices. Although the formality of a printed price bulletin such as is published by major purchasers is not necessary for a price to be a valid posted price, the formality of a publicly circulated written offer is necessary. The requirement that the offer be in writing and publicly circulated eliminates oral offers and offers made only to specified producers. Accordingly, other than the published price bulletins of the type traditionally issued by major oil companies, written offers to purchase constitute a ''posted price'' only if they are bona fide public offers of general applicability to crude oil producers in the field. For example, a letter from a purchaser to all crude oil producers in a field or in an area would constitute a posted price if the letter was a bona fide offer to purchase from all producers in that field or area. A written contract, of course, would not qualify as a posted price because it represents an agreement between a buyer and specific producer, not a bona fide offer to purchase from all producers. Accordingly, in determining the ''highest posted price,'' a producer should first determine which offers qualify as posted prices for December 31, 1979. Because a posted price must constitute an offer to purchase, an offer does not constitute a posted price for December 31, 1979, unless the offer was initially made on or before December 31, 1979, and was in effect for oil purchased on that date. However, in determining the highest posted price for December 31, 1979, a valid posted price that was adjusted in a subsequent posted price circulated on or before January 14, 1980, shall be considered to be an offer made at the price as adjusted so long as the adjusted price applies to all oil purchased pursuant to the initial offer. In determining which posted prices were applicable to a particular field on December 31, 1979, the term ''field'' means a general area underlain by one or more reservoirs. Historical field designations commonly used by regulatory agencies and the oil industry will generally be used in the determination of a given field. Price bulletins which specify only a geographical area and crude oil grade (e.g., ''West Texas Sour'') are presumed to be applicable to every field within the named area, unless a particular field is specifically excluded. However, the existence of a price bulletin stating a higher price for specifically named fields within the same area supersedes the area-wide price bulletin for the named field only. Finally, posted prices do not include either offers to buy at a price not specified in a sum certain (e.g., a price ''determined by the purchaser to be competitive'') or premiums above posted prices which may have been paid for crude oil purchased on December 31, 1979.

(ii) Minimum interim base price. The base price determined under paragraph (c)(8)(i) of this section for tier 2 oil or tier 3 oil shall not be less than the sum of:

(A) The ceiling price which would have applied to such oil under the March 1979 energy regulations if it had been produced and sold in May 1979 as upper tier oil, plus

(B) $1 in the case of tier 2 oil or $2 in the case of tier 3 oil.

For purposes of this determination, the grade and quality of the oil produced from the property in May 1979 shall be used.

(d) Variations in grade or quality of oil. For purposes of paragraphs (b) and (c) of this section, if the production from a property in May or December 1979 varied in grade or quality during the month, the per barrel average grade and quality for the month shall be used. If there was no commercial production in May or December 1979, the grade and quality of the oil produced in the first month of commercial production after such month shall be used. Once the base price is determined, it is not to be adjusted for later changes in grade or quality.

(Secs. 4989 (d)(1), 4997, 7805, Internal Revenue Code of 1954 (94 Stat. 233, 249, 68A Stat. 917; (26 U.S.C. 4989 (d)(1), 4997, 7805))

(T.D. 7690, 45 FR 23387, Apr. 4, 1980, as amended by T.D. 7721, 45 FR 64575, Sept. 30, 1980; T.D. 7905, 48 FR 35093, Aug. 3, 1983; 49 FR 15188, Apr. 18, 1984)

26 CFR 150.4991-1 Taxable crude oil; tiers of oil.

(a) Taxable crude oil. Section 4991 defines the term ''taxable crude oil'' to mean all domestic crude oil (including crude oil derived by the producer from the production of natural gas) other than exempt oil. The term ''exempt oil'' is any crude oil from a qualified governmental interest (see section 4994(a)) or a qualified charitable interest (see section 4994(b)), any exempt front-end oil (see section 4994(c)) any exempt Indian oil (see section 4994(d)), and any exempt Alaskan oil (see section 4994(e)).

(b) Tiers of oil. Section 4991 defines the tiers of taxable crude oil. Tier 1 oil is any taxable crude oil other than tier 2 oil and tier 3 oil. Tier 2 oil is any oil which is produced from a stripper well property within the meaning of the June 1979 energy regulations (see 150.4996-1(f)) and any oil from an economic interest in a National Petroleum Reserve held by the United States. However, the term ''tier 2 oil'' does not include tier 3 oil. Tier 3 oil is newly discovered oil, heavy oil, and incremental tertiary oil. The term ''newly discovered oil'' has the meaning given to that term by the June 1979 energy regulations. The term ''heavy oil'' means all crude oil which is produced from a property if crude oil produced and sold from that property during either:

(1) The last month before July 1979 in which crude oil was produced and sold from that property, or

(2) The taxable period,

had a weighted average gravity of 16 degrees API or less (corrected to 60 degrees Fahrenheit). For the definition of incremental tertiary oil, see 150.4993-1.

26 CFR 150.4992-1 Independent producer oil.

(a) General rule. ''Independent producer oil'' is that portion of an independent producer's qualified production for the quarter which does not exceed such person's independent producer amount for the quarter.

(b) Independent producer defined. An ''independent producer'', with respect to any quarter, is any person other than a person to whom subsection (c) of section 613A does not apply by reason of paragraph (2) (relating to certain retailers) or paragraph (4) (relating to certain refiners) of section 613A (d) (or to whom subsection (c) would not apply if subsection (d)(2) or (4) were applied on a quarterly rather than an annual basis).

(c) Independent producer amount. A person's independent producer amount for any quarter is the product of 1,000 barrels multiplied by the number of days in the quarter. For March 1980, the independent producer amount is 31,000 barrels. If a person's qualified production for any quarter exceeds that person's independent producer amount for the quarter, the independent producer amount is to be allocated between tiers 1 and 2 in proportion to the person's production for the quarter of domestic crude oil in each such tier, and is to be allocated within any tier on the basis of the removal prices for such person's domestic crude oil in that tier removed during that quarter, beginning with the highest of those prices.

(d) Qualified production of oil defined -- (1) In general. An independent producer's qualified production of oil for any quarter is the number of barrels of taxable crude oil of which such person is the producer which is removed during that quarter, which is tier 1 oil or tier 2 oil, and which is attributable to the independent producer's working interest in a property.

(2) Working interest defined. The term ''working interest'' means an operating mineral interest (within the meaning of section 614(d)) which was in existence as an operating mineral interest on January 1, 1980, or which is an operating mineral interest derived from a qualified overriding royalty interest after that date. A ''qualified overriding royalty interest'' is an overriding royalty interest in existence as such an interest on January 1, 1980, but only if on or before February 20, 1980, there was in existence a binding contract under which such interest was to be converted into an operating mineral interest.

(3) Production from transferred property -- (i) In general. Except as otherwise provided in this subparagraph, in the case of a transfer (as defined in 150.4996-3(b)) on or after January 1, 1980, of an interest in any property, the qualified production of the transferee shall not include any production attributable to such interest.

(ii) Small producer transfer exemption -- (A) In general. Subdivision (i) shall not apply to any transfer of an interest in property if the transferee establishes, to the satisfaction of the district director for the district in which the property is situated, that at no time after December 31, 1979, has the property been held by a person who was a disqualified transferor for any quarter ending after September 30, 1979, and ending before the date such person transferred the interest.

(B) Disqualified transferor. The term ''disqualified transferor'' means, with respect to any quarter, any person who either had qualified production for such quarter which exceeded such person's independent producer amount for such quarter or was not an independent producer for such quarter.

(C) Special rules. For purposes of this paragraph, property held by a partnership at any time shall be treated as owned proportionately by the partners of such partnership at such time. Property held by any trust or estate shall be treated as owned both by such trust or estate and proportionately by its beneficiaries. Chapter 45 and this part shall be treated as having been in effect for periods after September 30, 1979, for purposes of making any determination under subdivision (ii)(B).

(iii) Other exceptions. Subdivision (i) shall not apply in the case of:

(A) A transfer of property at death,

(B) A change of beneficiaries of a trust which qualifies under clause (iii) of section 613A(c)(9)(B) (determined without regard to the exception at the end of such clause), and

(C) Any transfer so long as the transferor and transferee are required by section 4992(e) to share the 1,000 barrel amount referred to in paragraph (c) of this section.

The preceding sentence shall apply in the case of any property only if the production from the property was qualified production for the transferor.

(e) Allocation within related group -- (1) In general. Section 4992(e) contains rules for the allocation of the 1,000 barrel per day amount among all persons who are members of the same related group.

(2) Special rules. (Reserved)

26 CFR 150.4993-1 Incremental tertiary oil.

(a) In general -- (1) Incremental tertiary oil. ''Incremental tertiary oil'' is the excess of the amount of crude oil which is removed from a property during any calendar month and which is produced on or after the project beginning date and during the period for which a qualified tertiary recovery project is in effect on the property over the base level for the property for that month.

(2) Base level. (i) The base level for any property for any month is determined by ascertaining (under the principles reflected in the rules used in determining the base production control level in the June 1979 energy regulations) the average monthly amount of crude oil removed from the property during the 6-month period ending March 31, 1979. To arrive at the base level, that average monthly amount is then reduced (but not below zero) by the sum of 1 percent of such amount for each month which begins after 1978 and before the first calendar month beginning after the project beginning date, and 2 1/2 percent of such amount for each month which begins after the project beginning date (or after 1978 if the project beginning date is before 1979) and before the month for which the base level is being determined.

(3) Minimum amount. If a qualified tertiary recovery project has been certified under the June 1979 energy regulations, and the certification is in effect, the amount of the incremental tertiary oil shall not be less than the incremental production determined under the June 1979 energy regulations.

(4) Allocation rules. The determination of which barrels of crude oil removed during any calendar month are incremental tertiary oil shall be made:

(i) First by allocating the amount of incremental tertiary oil between oil which (but for this paragraph) would be tier 1 oil, and oil which (but for this paragraph) would be tier 2 oil, in proportion to the respective amounts of each such oil removed from the property during such month, and

(ii) Then by taking into account barrels of crude oil so removed in the order of their respective removal prices, beginning with the highest of such prices.

(b) Qualified tertiary recovery project -- (1) In general. A ''qualified tertiary recovery project'' is either a qualified tertiary enhanced recovery project with respect to which a certification as such has been approved and is in effect under the June 1979 energy regulations or any project for enhancing recovery of crude oil which meets the requirements of subparagraph (2) of this paragraph. Because the energy regulations, as in effect on June 1, 1979, did not permit self-certification of projects, such a project must meet the requirements of subparagraph (2) of this subparagraph to be a ''qualified tertiary recovery project''.

(2) Requirements. A project meets the requirements referred to in subparagraph (1) of this paragraph if it satisfies subdivisions (i) through (iv) of this subparagraph.

(i) The project involves the application (in accordance with sound engineering principles) of one or more tertiary recovery methods which can reasonably be expected to result in more than an insignificant increase (determined in light of all the facts and circumstances) in the amount of crude oil which will ultimately be recovered;

(ii) The project beginning date is after May 1979;

(iii) The portion of the property to be affected by the project is adequately delineated; and

(iv) The operator submits either:

(A) A certification from a petroleum engineer that the project meets the requirements of subdivisions (i), (ii), and (iii), or

(B) A certification that a jurisdictional agency (as defined in section 4993(d)(5)) has approved the project as meeting those requirements, and that such approval is still in effect.

For rules relating to the submission of a certification from a petroleum engineer, see 150.4993-2. For rules relating to the submission of a certification from a jurisdictional agency, see 150.4993-3.

(c) Definitions and special rules. Under section 4993(d), the term ''tertiary recovery method'' means any method which is described in subparagraphs (1) through (9) of section 212.78(c) of the June 1979 energy regulations, or any other method to provide tertiary enhanced recovery which is approved in writing by the Office of the Assistant Commissioner (Technical). The ''project beginning date'' is the later of:

(1) The date on which the injection of liquids, gases, or other matter begins, or

(2) The date on which:

(i) The project is certified as a qualified tertiary enhanced recovery project under the June 1979 energy regulations, or

(ii) All of the requirements of 150.4993-2 are met with respect to the submission of a petroleum engineer's certification, or all of the requirements of 150.4993-3 are met with respect to the submission of a certification of jurisdictional agency approval. However, for purposes of the preceding sentence only, in the case of a submission received by an Internal Revenue Service Center on or before May 1, 1980, such submission shall be considered to have been received on the later of March 1, 1980, or the date on which the petroleum engineer executed the certification or the jurisdictional agency issued its approval.

If a qualified tertiary recovery project can reasonably be expected to increase the ultimate recovery of crude oil from only a portion of a property, the portion shall be treated as a separate property for purposes of this section. A significant expansion of any project shall be treated as a separate project. A taxpayer may request a ruling with respect to whether a project is a qualified tertiary recovery project. For rules relating to the request for such a ruling see 150.4993-4.

26 CFR 150.4993-2 Self-certification of tertiary recovery projects.

(a) Certification of petroleum engineer. In order to qualify under section 4993(c)(2)(D)(i), relating to the self-certification of a qualified tertiary recovery project, the operator shall submit a certification, signed under penalties of perjury by a petroleum engineer (who has been duly registered or certified in accordance with applicable state law, if any), to the Internal Revenue Service Center for the region with which the income tax return of the operator is filed. The certification shall contain the following:

(1) A statement that the project involves a tertiary recovery method (as defined in section 4993(d)(1) and 150.4993-1(c)) that is expected to result in more than an insignificant increase in the ultimate recovery of crude oil, together with a description of the process used and the increase in the amount of oil to be recovered by reason of the application of the method,

(2) A descriptionof the implementation and operation of the project sufficient to establish that its implementation and operation are in accordance with sound engineering principles,

(3) An identification of the area from which the ultimate recovery of crude oil is expected to be increased as a result of the implementation and operation of the project, and, if that area is less than the entire property, a precise delineation of the portion of the property that is expected to yield the increase in the ultimate recovery of oil,

(4) The date on which the tertiary injectant was, or is expected to be, initially introduced into the reservoir,

(5) An explanation of the number and frequency of injections to be made and the expected duration of the project,

(6) If the project involves a single injection, an estimate of the period of time during which the injectant will continue to increase the recovery of crude oil,

(7) Data on oil reserve estimates covering the project area with and without the tertiary recovery process,

(8) The past production history and estimates of future production,

(9) The number of wells in the project area and the number of both producing and injection wells expected to be drilled,

(10) Projected future income and expenses, and

(11) The operator's employer identification number.

The Petroleum engineer's certification may be submitted at any time. However, for purposes of section 4993(d)(2)(B) and paragraph (c) of 150.4993-1 relating to the ''project beginning date'', a petroleum engineer shall not be considered as having certified a project until the certification is received by the Internal Revenue Service Center. If the certification is sent to the Service Center by mail, it shall be considered received when posted by United States mail, properly addressed, and with sufficient postage.

(b) Termination of injection. If any project certified under paragraph (a) of this section involves the continuous or repetitious injection of liquids, gases, or other matter and if the injection is terminated, the operator shall promptly send a written statement to that effect to the Intneral Revenue Service Center setting forth the date that the injection was terminated.

(c) Significant expansion. If a project is significantly expanded, the expansion shall be treated as a separate project requiring separate certification.

26 CFR 150.4993-3 Jurisdictional agency certification of tertiary recovery projects.

(a) Initial certification. In order to qualify under section 4993(c)(2)(D)(ii), relating to the approval of tertiary recovery projects by a jurisdictional agency, the operator shall submit the certification to the Internal Revenue Service Center for the region with which the income tax return of the operator is filed. The certification shall state that the appropriate jurisdictional agency has approved the project as having met the requirements set forth in section 4993(c)(2) (A), (B), and (C), and the operator shall attach the approving document or a certified copy thereof. The certification of the jurisdictional agency's approval may be submitted at any time. However, for purposes of section 4993(d)(2)(B)(ii) and paragraph (c) of 150.4993-1, relating to the ''project beginning date'', a jurisdictional agency shall not be considered as having approved a project until the certification is received by the Service Center. If the certification is sent to the Service Center by mail, it shall be considered received when posted by United States mail, properly addressed, and with sufficient postage.

(b) Revocation of certification. If the agency revokes the approval, it shall immediately notify the operator and the Service Center of the revocation setting forth the date of the revocation and stating whether the revocation has retroactive effect (and, if so, to what date the revocation is retroactive), and the operator shall send a copy of the revocation to the Service Center within 10 days after receiving it.

26 CFR 150.4993-4 Internal Revenue Service rulings relating to qualified tertiary recovery projects.

(a) In general. Either the operator of a property or any producer of oil from that property may request a ruling from the Internal Revenue Service as to whether any tertiary recovery project involving that property is a ''qualified tertiary recovery project'' within the meaning of section 4993(c). If a producer submits the request, the producer shall notify the operator in writing that the request was submitted.

(b) Manner of requesting ruling. The request for a ruling described in paragraph (a) of this section shall be made by submitting the request to the Commissioner of Internal Revenue, Attention: Assistant Commissioner (Technical), Washington, D.C. 20224. In addition to meeting the requirements of 601.201(e) of this chapter (Statement of Procedural Rules), the request shall contain the following:

(1) A statement as to whether a jurisdictional agency has approved the project, and if so, a copy of the approving document and a copy of the material upon which the approval was based together with any certification submitted to a Service Center and identification of such Service Center,

(2) A statement from the operator of the property as to whether the operator has previously submitted a request for a ruling on that project and as to whether any producer has notified the operator that a request has been submitted, as well as to the date and name of the person who made a request,

(3) A description of the location of the project,

(4) The type of tertiary recovery process instituted,

(5) Data on oil reserve estimates covering the project area with and without the tertiary recovery process,

(6) The past production history and estimates of future production,

(7) The characteristics of the formation such as the name, depth, lithology, thickness, porosity, permeability, and reservoir pressure and temperature history,

(8) A description of any secondary or tertiary process previously used, or in use, in the project area,

(9) A full and complete description of the tertiary process stating how it will be developed from the pilot flood through full development, and

(10) A complete description of the geological and engineering factors taken into consideration, together with sufficient data to support the conclusion that the project meets the requirements of section 4993(c) for a ''qualified tertiary recovery project''.

(c) Special rule for projects for which a certification of approval by a jurisdictional agency has been submitted. If, pursuant to section 4993(c)(2)(D)(ii) and 150.4993-3, the operator of the property has submitted a certification of approval by a jurisdictional agency, the ruling described in paragraph (a) of this section will be issued within 180 days of the date that a request for the ruling, meeting the requirements of paragraph (b) of this section and 601.201(e) of this chapter (Statement of Procedural Rules) is received by the Office of the Assistant Commissioner (Technical). However, if the request for a ruling is not complete as to the information required in paragraph (b) (1) through (10) of this section, the Office of the Assistant Commissioner (Technical) may send written notice to the person making the request specifying the further information that must be submitted. The 180-day period shall not include any days after the date of the mailing of the written notice and before the date on which the additional information is received.

26 CFR 150.4994-1 Exemptions.

Section 4994 defines the terms ''qualified governmental interest'', ''qualified charitable interest'', ''exempt front-end oil'', ''exempt Indian oil'', ''exempt Alaskan oil'', and ''exempt royalty oil'', the categories of oil that are exempt from the tax imposed by section 4986.

(T.D. 7811, 47 FR 8996, Mar. 3, 1982)

26 CFR 150.4995-1 Requirement of withholding.

(a) General rule; when required -- (1) In general. Except as otherwise provided in this section, the purchaser (as defined in 150.4996-1 (a)) of domestic crude oil shall deduct and withhold tax from amounts payable by that purchaser for the oil. However, the preceding sentence shall not apply if:

(i) The crude oil is removed from the premises (as defined in 150.4996-1 (d)) before it is sold, or

(ii) The manufacture or conversion of crude oil into refined products begins before the oil is removed from the premises, or

(iii) The producer of the oil is an integrated oil company (as defined in 150.4996-1 (g)) that has furnished a certificate to the purchaser pursuant to paragraph (c) (2) of 150.4995-2 (or, in the case of any payment for oil produced by an integrated oil company made before May 31, 1981 the purchaser does not in fact deduct, withhold, and deposit the tax), or

(iv) The purchaser has received a qualified disburser's certificate pursuant to 150.4995-5 with respect to that oil and the certificate is still in effect, or

(v) In the case of oil removed after March 31, 1981, the United States (or any agency or instrumentality thereof) is the producer of the oil as holder of a royalty or net profits interest and the oil is sold to the purchaser directly by the Department of the Interior, or

(vi) The purchaser has received a Federal royalty certificate from an operator or lessee pursuant to paragraph (c) (3) of 150.4995-2.

The amount of tax to be deducted and withheld shall be determined in accordance with the rules of paragraphs (b) and (c) of this section. See, however, paragraph (d) of this section for rules applicable to certain payments made prior to June 4, 1980. For purposes of the tax imposed by section 4986, the producer shall be treated as having paid on the last day of the first February after the calendar year in which the oil is removed from the premises the amount deducted and withheld with respect to such oil by the purchaser under this section.

(2) Special rule for oil removed before sale. If the purchaser of crude oil would be required to deduct and withhold tax from amounts payable for the oil but for the fact that the oil was removed from the premises before sale, and if the purchaser can determine the amount of tax imposed by section 4986 with respect to the oil, the purchaser may elect to withhold. If the purchaser elects to withhold, the purchaser shall be deemed to be required to withhold under paragraph (a) (1) of this section. The election shall be made by furnishing to the operator of the property from which the oil was produced and to each person to whom the purchaser makes payment for the oil a document that informs the recipient that the tax is being withheld. The election document shall be furnished within 5 days of receipt of the first oil to which it applies. Unless the election document specifies otherwise, the election shall remain effective until 30 days after the purchaser furnishes each recipient of the election document (or a successor in interest) a document informing the recipient that the tax will not be withheld. See 150.4995-4 and 150.4995-5 for the elections pursuant to which an operator or qualified disburser is treated as the purchaser.

See 150.4995-3 for the depository rules applicable to oil removed during each month (semi-monthly period in the case of certain integrated oil companies).

(b) Amount to be deducted and withheld -- (1) Operator's certification. If the purchaser has received the certification required to be furnished by the operator pursuant to section 6050C and 150.6050C-1, and if the purchaser has no reason to believe that any information contained in that certification that affects the computation of the windfall profit tax is not correct, the amount of tax to be deducted and withheld under paragraph (a) of this section is the amount of tax imposed by section 4986 based on the information provided in the operator's certification. However, in determining the amount to be deducted and withheld, section 4988(b) (relating to the net income limitation on windfall profit) shall not apply.

(2) Absence of complete and current operator's certification -- (i) In general. This subparagraph applies if the purchaser has not received the certification required to be furnished by the operator to section 6050C and 150.6050C-1, or if the certification does not contain all the information necessary for the purchaser to compute the amount to be withheld under paragraph (b)(1) of this section, or if the purchaser has reason to believe that any information contained in that certification that affects the tax computation is not correct (including information that was correct when provided but that has become incorrect, such as a base price that was correct under the interim rule of 150.4989-1(c)(8) after that rule ceases to apply). In such a case, the amount of tax to be deducted and withheld under paragraph (a) of this section is the amount of tax imposed by section 4986 (without regard to the net income limitation provided in section 4988(b) based on the information, if any, provided in the operator's certification that the purchaser has no reason to believe is not correct, and on the substitution of the following assumptions for any item of information that is absent from the certification or that the purchaser has reason to believe is not correct:

(A) If the item that is absent or that the purchaser has reason to believe is not correct is the tax tier of the oil, the oil shall be assumed to be in tier 1 subject to the 70 percent rate of tax;

(B) If the item is the adjusted base price, the adjusted base price shall be assumed to be:

(1) In the case of tier 1 oil, $11,01 plus the amount equal to $11.01 multiplied by the inflation adjustment provided under section 4989(b)(1) for the calendar quarter in which the oil was removed,

(2) In the case of tier 2 oil, $12.11 (the amount equal to $11.01 multiplied by 1.1, the amount specified in 150.4989-1(c)(6)(ii)(A)) plus the amount equal to $12.11 multiplied by the inflation adjustment provided under section 4989(b)(1) for the calendar quarter in which the oil was removed, and

(3) In the case of tier 3 oil, $13.21 (the amount equal to $11.01 multiplied by 1.2, the amount specified in 150.4989-1(c)(6)(ii)(B) plus the amount equal to $13.21 multiplied by the inflation adjustment provided under section 4989(b)(2) for the calendar quarter in which the oil was removed;

(C) If the item is the severence tax adjustment provided by section 4996(c), the severence tax adjustment shall be assumed to be inapplicable unless the amount of that adjustment is known by the purchaser.

(ii) Effective date. Notwithstanding paragraph (f) of this section, this subparagraph is effective with respect to payments made after November 30, 1980, for oil removed on or after March 1, 1980, unless the purchaser chooses to apply this subparagraph at an earlier date. However, prior to the effective date of this subparagraph as provided in the preceding sentence, this subparagraph as originally promulgated in Treasury Decision 7690 (see 45 FR 23384) is effective as provided in paragraph (f) of this section.

(3) Producer's certification. If, pursuant to 150.4995-2, the purchaser has received a certification that a producer's share of production from a property qualifies as ''exempt oil'' or ''independent producer oil'', and if the purchaser has no reason to believe that any statement in the certification bearing on such qualification is not correct, the purchaser:

(i) Shall not withhold tax from amounts payable for the share of production that has been certified as exempt oil (the provisions of paragraph (b) (1) and (2) of this section notwithstanding), and

(ii) In determining the amount to be withheld under paragraph (b)(1) of this section from amounts payable for the share of production that has been certified as independent producer oil, shall apply the rates provided in section 4987(b)(2) and, in determining the amount to be withheld under paragraph (b)(2) of this section, shall substitute 50 percent for 70 percent.

If a payment by a purchaser is made to an operator, partnership, or other disburser, rather than directly to the producer of the oil, the amount of exempt oil and independent producer oil shall be determined on the basis of information provided to the purchaser by the operator, partnership, or disburser pursuant to paragraph (e) of 150.4995-2.

(c) Withholding adjustments -- (1) General rule. (i) A purchaser who ascertains that the amount of tax withheld from any payment for crude oil was more or less than the amount of tax imposed by section 4986 (computed without regard to the net income limitation) with respect to that crude oil shall make adjustments in the amount to be withheld from subsequent payments to the same person as provided in this paragraph. For purposes of this paragraph, a purchaser has ascertained that the amount withheld was more or less than the tax imposed when the purchaser has sufficient information to be able to determine the amount of tax imposed by section 4986 (computed without regard to the net income limitation) with respect to that crude oil. Thus, adjustments are generally required when the purchaser made an incorrect calculation with respect to a prior payment, when the purchaser has withheld in accordance with the rules of paragraph (b)(2) because of the absence of an effective operator's certification and the purchaser later receives an effective certification, when an earlier certification is corrected, or when the purchaser has withheld tax from a producer at the generally applicable rates and the purchaser subsequently receives a retroactively effective independent producer's certificate. Every adjustment under this paragraph shall be reflected on Form 720 (the return from which is prescribed for use in reporting windfall profit tax withholding). If the entire adjustment would be reported in the return for the same taxable period as the withholding giving rise to the adjustment, the return for that period shall reflect only the amount withheld as adjusted. Otherwise, every return on which an overpayment or underpayment is adjusted pursuant to this paragraph must include such statements and other information as may be required by the instructions to the return.

(ii) Except as otherwise provided in subparagraph (3) of this paragraph, the purchaser must make a full adjustment by underwithholding or overwithholding in subsequent payments to the same person (whether or not from the same property) so that the total amount withheld is equal to the tax imposed by section 4986 (computed without regard to the net income limitation).

The full adjustment must be made, if possible, in the next payment. If it is not possible to complete the adjustment in the next payment, the purchaser shall adjust by underwithholding or overwithholding to the fullest extent possible in each subsequent payment until the adjustment is completed. However, no adjustment is to be made in the amount withheld from payments made after the statement required by 150.4997-2(c) (relating to annual statement of windfall profit tax liability) is furnished. Furthermore, no adjustment is required to be made in the amount withheld from payments made for oil removed in a subsequent calendar year, although the purchaser may make such an adjustment if the adjustment is reflected in the statement required by 150.4997-2(c) for the year in which the error occurred. If the error is one of underwithholding that is not fully adjusted under this paragraph (e.g., where the relationship between the producer and the purchaser has terminated), the producer is required to file a return at the end of the year in accordance with 150.4997-1 unless the producer's entire liability for tax under section 4986 has been satisfied by reason of overwithholding by another purchaser. If the error is one of overwithholding that is not fully adjusted under this paragraph, the rules of 150.6402-1 with respect to claims for credit or refund are applicable to the producer.

(iii) If the purchaser is required to make an adjustment by overwithholding under this paragraph because the purchaser withheld less than the amount required to be withheld from an earlier payment, the overwithholding under this paragraph shall not be treated as an amount withheld or required to be withheld for purposes of 150.4995-3 (relating to depositary requirements) to the extent that the excess of the amount originally required to be withheld over the amount actually withheld has been deposited by the purchaser (and reported if the underwithholding occurred in an earlier taxable period).

(2) Special rules. (i) No amount shall be deducted or withheld from any payment in excess of the windfall profit with respect to the oil giving rise to that payment.

(ii) If, pursuant to section 4995(a)(3)(D), the producer and purchaser agree to additional withholding, any amount withheld pursuant to the agreement shall be treated as an amount required to be withheld.

(iii) If, under the rules of this paragraph, the purchaser would otherwise be required (or permitted) to make an adjustment by underwithholding in subsequent payments, the purchaser may (at the purchaser's option) adjust the overwithholding (in full or in part) by making a payment to the producer or the producer's agent in the amount of the overwithheld tax (or a portion thereof). For purposes of 150.4995-3 (relating to depositary requirements), any amount paid pursuant to the preceding sentence shall be treated as a reduction in the amount required to be deposited under 150.4995-3 with respect to oil removed from the premises during the month immediately preceding the month of payment (during the semi-monthly period of the payment in the case of an integrated oil company making deposits under paragraph (a) of 150.4995-3). However, any adjustment by payment under this subdivision shall not exceed the amount that would reduce to zero the amount otherwise required to be deposited under 150.4995-3 for the depositary period referred to in the preceding sentence.

(3) Examples. The provisions of this paragraph may be illustrated by the following examples:

Example (1). A, a purchaser of crude oil, has been withholding in accordance with the special rules of paragraph (b)(2) because the operator of the property from which A purchases oil has not provided A with the certification required by 150.6050C-1. Subsequently, the operator does provide A with the certification, and A, withholding under the rules of paragraph (b)(1), ascertains that the amount withheld earlier exceeds the amount of tax imposed by section 4986 based upon the information provided by the operator. Although A withheld properly in accordance with the information available during the earlier period, the amount withheld is subject to the adjustment rules of this paragraph.

Example (2). Purchaser B, in the third calendar quarter of the year, ascertains that too little tax was withheld from payments for oil purchased in the preceding calendar quarter with respect to producer C. B must attempt to fully adjust the underwithholding by increasing the amount withheld from subsequent payments made to C (up to the full amount of windfall profit). If the adjustment has not been completed when B makes the final payment for oil removed during the calendar year, B is permitted, but not required, to continue the adjustments in payments for oil removed after the close of the calendar year so long as the annual information statement and return required by 150.4997-2 (c) reflects the adjustment. B is required to inform C of C's liability for any amount remaining unadjusted and to provide that information to the Internal Revenue Service in accordance with the rules of 150.4997-2.

Example (3). D, the producer of exempt oil, failed to provide purchaser E with an exemption certificate in time to avoid the withholding of tax from a payment made by E to D. Under paragraph (c)(2)(iii), E has the option of adjusting the overwithholding by making a payment to D.

(d) Interim withholding rule -- (1) Effective date. The rules of this paragraph apply to payments made after April 18, 1980, and before June 4, 1980, with respect to oil removed on or after March 1, 1980. These rules may, at the option of the purchaser, be applied with respect to payments made prior to the above period with respect to such oil.

(2) General rule. The purchaser of domestic crude oil shall deduct and withhold from amounts payable by that purchaser for the oil the amount specified in subparagraph (3) of this paragraph unless:

(i) The crude oil is removed from the premises (as defined in 150.4996-1(d)) before it is sold, or

(ii) The manufacture or conversion of crude oil into refined products begins before the oil is removed from the premises, or

(iii) The producer of the oil is an integrated oil company (as defined in 150.4996-1(g)).

For purposes of section 4995 (a) (1) (B), the amount specified in subparagraph (3) of this paragraph shall be considered the tax required to be withheld under section 4995 (a) (1) (A).

(3) Amount to be deducted and withheld; options of purchaser. The amount to be deducted and withheld under subparagraph (2) of this paragraph is, at the option of the purchaser, either:

(i) 70 percent of the excess, if any, of the purchase price per barrel of crude oil over $11.22 ($11.47 for oil removed after March 31, 1980), or

(ii) The amount that would be required to be withheld under paragraphs (a) and (b) (or, at the purchaser's option, paragraphs (a), (b), and (c)) of this section if those paragraphs were in effect.

The purchaser may choose from among the above options with respect to each payment to which this paragraph applies.

(e) Extent of purchaser's liability. Every purchaser required to deduct and withhold tax under this section is liable for the tax required to be withheld, whether or not it is actually withheld by the purchaser. However, in no event shall the purchaser's liability for the tax required to be withheld exceed the producer's liability for the tax imposed by section 4986 (including the application of the net income limitation provided in section 4988(b) if all the data necessary for computing that limitation are available) with respect to oil sold to that purchaser, and the purchaser's liability shall abate to the extent that the producer's liability for the tax is paid (including payments by the producer or by the purchaser through adjustments in amounts later withheld). See paragraph (c) relating to adjustments in withholding. The producer from whom the correct amount was not withheld shall be liable to any purchaser for the amount of the producer's tax liability paid by the purchaser pursuant to this paragraph. The purchaser is relieved of liability to any other person for the amount of any tax withheld pursuant to this section and paid to the Internal Revenue Service or deposited with a duly designated depositary of the United States. See 150.4995-3 relating to depositary requirements.

(f) Effective date. The rules of paragraphs (a), (b), and (c) of this section are effective with respect to payments made after June 3, 1980, for oil removed on or after March 1, 1980. However, for purposes of applying paragraph (c) to payments described in the preceding sentence, payments made before June 4, 1980, for oil removed on or after March 1, 1980, shall be treated as if paragraphs (a) and (b) applied to them.

(Secs. 4989(d)(1), 4995, 4997(b), and 7805 of Title 26 of the United States Code and sec. 101 of the Crude Oil Windfall Profit Tax Act of 1980; secs. 4995, 4996, 4997, 6050C, 6109, and 7805 of Title 26 of the United States Code (94 Stat. 244, 247, 249-250, and 251, 75 Stat. 828 and 68A Stat. 917; 26 U.S.C. 4995, 4996, 4997, 6050C, 6109, and 7805))

(T.D. 7690, 45 FR 23387, Apr. 4, 1980, as amended by T.D. 7721, 45 FR 64577, Sept. 30, 1980; T.D. 7755, 46 FR 4876, Jan. 19, 1981; T.D. 7770, 46 FR 13509, Feb. 23, 1981)

26 CFR 150.4995-2 Producer's certificate.

(a) In general. The producer of ''exempt front-end oil'' (as defined in section 4994(c)), ''exempt Indian oil'' (as defined in section 4994(d)) or ''exempt royalty oil'' (as defined in section 4994 (f)), or the holder of any interest in crude oil that is a ''qualified governmental interest'' (as defined in section 4994(a)) or is a ''qualified charitable interest'' (as defined in section 4994(b)), may execute an exemption certificate with respect to such oil. In the case of ''exempt Indian oil'' produced from lands administered by the Bureau of Indian Affairs, the certificates may be furnished and filed by the Commissioner of Indian Affairs or his delegate on behalf of the producer. Any producer of ''independent producer oil'' (as defined in section 4992) may execute a certificate with respect to such oil. Any certificate executed pursuant to this paragraph shall be furnished to the purchaser of the oil or, if the producer receives payment for the oil through the operator of the property from which the oil is produced, a partnership, or other disburser of the sales proceeds, to such operator, partnership, or disburser. Every integrated oil company shall follow the rules of paragraph (c)(2) of this section (relating to mandatory and optional withholding exemption certificates). Any certificate provided under this section must set forth the facts that establish entitlement to the exemption or lower rates claimed. The certificate (or any revocation of a certificate) shall identify the producer by name, address, and employer identification number (or, if none, social security number) and shall be signed by the producer (under the penalties of perjury except in the case of a revocation). Forms 6458 and 6783 are provided for this purpose. For the requirement that the operator of a property, partnership, or other disburser who has received such a certificate furnish a copy of the certificate, or certify as to its contents, to the person making payment for oil, see paragraph (e) of this section. For the certification requirement of operators or lessees selling certain oil from a Federal lease, see paragraph (c)(3) of this section. For the effect of the furnishing of certificates, see 150.4995-1(b)(3) (relating to the withholding requirement). For the criminal penalty applicable to the furnishing of a false statement, see section 7206.

(b) Exemption certificate -- (1) In general. For purposes of this section, an exemption certificate is a written statement certifying that the producer's oil is exempt from the tax imposed by section 4986 because the oil constitutes exempt Indian oil, exempt front-end oil or exempt royalty oil or the oil is from a qualified governmental interest or a qualified charitable interest. Any producer who furnishes an exemption certificate (other than an exempt royalty owner's certificate) to an operator, purchaser, partnership, or other disburser shall also file an exemption certificate with the Internal Revenue Service Center, Austin, Texas (unless the producer filed the certificate with a different service center prior to January 19, 1981). Only one such certificate need be filed even though the producer may furnish certificates to more than one operator, purchaser, partnership, or other disburser.

(2) Exempt royalty owner's certificate. An exempt royalty owner's certificate shall certify that the producer is a qualified royalty owner (as defined in section 6429(d)(1)) and that the entire amount of production from certain property attributable to his interest is qualified royalty production (as defined in section 6429(d)(2)). No certificate may be furnished with respect to oil if it is reasonable to believe that the number of barrels attributable to the interest to be certified, taken together with all other oil with respect to which an exempt royalty owner's certificate has been furnished by the producer to any operator, purchaser, partnership, or other disburser, will exceed the producer's royalty limit amount (see section 4994(f)(2)). Allocation rules similar to the rules of section 6429(c) (2), (3), and (4) shall apply to the royalty limit amount. A certificate may be furnished with respect to oil removed after December 31, 1981.

(c) Other producers' certificates -- (1) Independent producer's certificate. An independent producer's certificate is a written statement certifying that the producer holds a working interest (as defined in section 4992(d)(2)) in a certain property and that the entire amount of production attributable to that interest is qualified production of oil as defined in section 4992(d). No certificate may be furnished with respect to oil if it is reasonable to believe that the number of barrels to be affected by the certificate, taken together with all other oil with respect to which an independent producer's certificate has been furnished by the producer to any operator, purchaser, partnership, or other disburser, will exceed the producer's independent producer amount (see section 4992 (c) and (e)). Producers who are members of a related group (within the meaning of section 4992(e)(2)) shall set forth in the certificate the members of the related group identified by employer identification number (or, if none, social security account number), and shall file one such certificate with the Internal Revenue Service Center, Austin, Texas. Only one such certificate need by filed even though the producer may furnish certificates to more than one operator, purchaser, partnership, or other disburser. The certificate shall be filed by the 30th day following the day that the producer first furnishes such a certificate to any operator, purchaser, partnership, or other disburser (or May 31, 1981, if later). Independent producers who are not members of a related group need not file the independent producer certificate with the Internal Revenue Service.

(2) Integrated oil company's certificate -- (i) Mandatory certificates. Every integrated oil company that is a producer of oil from a property of which that company is the operator (or would be the operator in the absence of a designation under 150.4996-1(c)) shall furnish the statement described in paragraph (c)(2)(iii) of this section to each purchaser of oil from that property no later than the date by which the first statement by the operator to the purchaser under 150.6050C-1 is required to be furnished (or May 12, 1980, if later).

(ii) Optional certificate. Any integrated oil company that is a producer of oil from a property of which that company is not the operator may, at its option, furnish such a statement with respect to such oil to the purchaser of the oil or, if the producer receives payment for the oil through the operator of the property from which the oil is produced, a partnership, or other disburser of the sales proceeds, to such operator, partnership, or disburser.

(iii) Contents of certificate. The certificate furnished pursuant to this subparagraph shall state that the producer is an integrated oil company (as defined in 150.4996-1(g)), that the producer will deposit its own windfall profit tax liability, and that the producer's share of production is not to be withheld upon under 150.4995-1.

(iv) Date certificate becomes effective. Any certificate furnished pursuant to this subparagraph shall apply to all payments for oil of which the integrated oil company is the producer made by or for the purchaser after the date on which the purchaser received the certificate.

(3) Federal royalty certificate -- (i) Certificate required. If the United States (or any agency or instrumentality thereof) is the producer of oil that is sold to the purchaser by the lessee or operator for the Department of the Interior, the lessee or operator shall furnish the statement described in paragraph (c)(3)(ii) of this section to each purchaser of such oil no later than the date by which the first statement by the operator to the purchaser under 150.6050C-1 is required to be furnished (or March 15, 1981, if later). The statement described in paragraph (c)(3)(ii) need not be furnished if the United States, acting through the Department of the Interior, sells its production directly to the purchaser.

(ii) Contents of certificate. The certificate furnished pursuant to this subparagraph shall state that the United States (or any agency or instrumentality thereof) is the producer of the oil (or a specified portion of the oil), that the oil is sold for the Department of the Interior, and that the United States' share of production is not to be withheld upon under 150.4995-1.

(d) Revocation of certificate. If the producer has furnished a certificate with respect to oil, and the producer subsequently discovers that the oil is not, or has ceased to be, eligible for certification under the rules of paragraphs (a) through (c) of this section, the producer shall furnish notice within 10 days to the person to whom the certificate was furnished that the certificate is revoked.

(e) Operators, partnerships, and other disbursers. If payment for a producer's oil is to be made by the purchaser through one or more operators, partnerships, or other disbursers rather than to each producer individually, the information contained in any certifications permitted by this section shall be aggregated in a certification by the operator, partnership, or disburser to the person from whom payment is received, unless such operator, partnership, or disburser has undertaken the withholding obligation of the purchaser pursuant to 150.4995-4 or 150.4995-5. Each certification shall state the percentage of the oil that is certified as exempt from tax or subject to a lower rate of tax. The certification may certify oil as exempt from tax or subject to a lower rate of tax only to the extent that the operator, partnership, or disburser has received certifications from the producers (or another operator, partnership, or disburser). Any operator, partnership, or disburser furnishing a certification shall retain in its records, for so long as material in the administration of any internal revenue law, each certification that was used as the basis for the certification furnished by the operator, partnership, or disburser under this section.

(f) Substitution of operator or qualified disburser for purchaser. If, pursuant to 150.4995-4 or 150.4995-5, the operator of a property or a qualified disburser elects to be responsible for the obligations otherwise imposed upon the purchaser, the purchaser shall forward to the responsible person, at the time of the election, any exemption certificate or any notice of revocation previously received by the purchaser. The purchaser shall immediately forward to the responsible person any exemption certificate or any notice of revocation received after the election. The operator or qualified disburser shall treat any exemption certificate or any notice of revocation forwarded by a purchaser as an exemption certificate or notice of revocation from the producer.

(Secs. 4995, 4996, 4997, 6050C, 6109, and 7805 of Title 26 of the United States Code (94 Stat. 244, 247, 249-250, and 251, 75 Stat. 828 and 68A Stat. 917; 26 U.S.C. 4995, 4996, 4997, 6050C, 6109, and 7805))

(T.D. 7755, 46 FR 4877, Jan. 19, 1981; 46 FR 16257, Mar. 12, 1981; T.D. 7811, 47 FR 8996, Mar. 3, 1982)

26 CFR 150.4995-3 Depositary requirements.

(a) Deposits by integrated oil companies other than independent refiners -- (1) In general. Every integrated oil company (as defined in 150.4996-1(g)) other than an independent refiner (as defined in 150.4996-1(h)) that is either liable as a producer for the tax imposed by section 4986 (unless such tax is required by 150.4995-1 to be deducted and withheld by the purchaser) or is required as a purchaser to deduct and withhold tax pursuant to 150.4995-1 shall make deposits with respect to semimonthly periods (as defined in paragraph (a)(3)(i) of this section). The amount to be deposited for each semimonthly period is the amount of tax imposed by section 4986 (computed with regard to the net income limitation provided in section 4988(b), if applicable) on the removal in that semimonthly period of oil that is not subject to withholding under 150.4995-1 for which the company is liable as a producer, plus the amount required to be withheld by the company as a purchaser pursuant to 150.4995-1 from payments that have been or will be made for oil removed from the premises during that semimonthly period. However, if the amount withheld by the company as a purchaser from any payment is more than the amount required to be withheld, the amount to be deposited shall be the amount withheld. The deposits shall be made on or before the depositary date (as defined in paragraph (a)(3)(ii) of this section) for the semimonthly period in which the oil is removed. These depositary requirements will be considered to have been met for a semimonthly period with respect to estimated deposits, including deposits based upon the producer's estimate of the effect of the net income limitation provided in section 4988(b) only if:

(i)(A) The company's deposit for such semimonthly period is not less than 90 percent of the total amount otherwise required by this section to be deposited by it for such period, and (B) if such period occurs in a month other than the last month in a taxable period, it deposits any underpayment for such month by the 9th day of the second month following such month; or

(ii)(A) Its deposit for each semimonthly period in the month is not less than 45 percent of the total amount otherwise required by this section to be deposited by it for the month, and (B) if such month is other than the last month in a taxable period, it deposits any underpayment for such month by the 9th day of the second month following such month; or

(iii)(A) Its deposit for each semi-monthly period in the month is not less than 50 percent of the total amount required by this section to be deposited by it for the second preceding calendar month (determined without regard to subdivisions (i) through (iv) of this subparagraph), and (B) if such month is other than the last month in a calendar quarter, it deposits any underpayment for such month by the 9th day of the second month following such month; or

(iv)(A) The requirements of (i) (A), (ii) (A), or (iii) (A) are satisfied for the first semimonthly period of a calendar month, and (B) the company's deposit for the second semimonthly period of that calendar month is, when added to the deposit for the first semimonthly period, not less than 90 percent of the total amount otherwise required by this section to be deposited by it for that month, and (C) if such period occurs in a month other than the last month in a calendar quarter, the company deposits any underpayment for such month by the 9th day of the second month following such month.

However, subdivisions (ii) and (iii) of this subparagraph shall not apply to any company that normally incurs in the first semimonthly period in each month more than 75 percent of its total liability for deposit for the month (determined without regard to subdivisions (i) through (iv)).

(2) Special requirement. If the aggregate amount of deposit liability for a taxable period (determined without regard to subdivisions (i) through (iv) of paragraph (a) (1) of this section) exceeds the total amount deposited by the company pursuant to paragraph (a) (1) of this section for such taxable period, then the company shall, on or before the last day of the second month following the close of the taxable period, deposit an amount equal to the amount by which the deposit liability exceeds the total deposits made pursuant to paragraph (a) (1) of this section for the taxable period.

(3) Definitions. For purposes of this part:

(i) Semimonthly period. A ''semimonthly period'' means the first 15 days of a calendar month or the portion of a calendar month following the 15th day of such month.

(ii) Depositary date. The depositary date for deposits for semimonthly periods is the 9th day of the semimonthly period following the semimonthly period in which the oil was removed.

(4) Special rule for oil removed prior to April 4, 1980. For purposes of this paragraph, oil removed after February 29, 1980, and before April 4, 1980 shall be considered to have been removed on April 4, 1980.

(b) Independent refiners purchasing oil pursuant to a delayed payment contract. Purchasers that are independent refiners (as defined in 150.4996-1(h)) shall make deposits for each calendar month in accordance with the rules of paragraph (c) of this section except in the case of oil purchased under a contract therefor under which no payment is required to be made by the purchaser before the 46th day after the close of the month in which the oil is purchased. In the case of oil purchased under such a contract, the deposits shall be made for each calendar month not later than the last day of the second month which begins after the month in which the oil was removed. The amount to be deposited for each month is the amount required to be withheld pursuant to 150.4995-1 from payments that have been or will be made for oil removed during that month. However, if the amount withheld by the purchaser from any payment is more than the amount required to be withheld, the amount to be deposited shall be the amount withheld.

(c) Deposits by other purchasers. Except as provided in paragraph (a) or (b) of this section, purchasers shall make deposits for each calendar month not later than 45 days after the close of that month. The amount to be deposited for each month is the amount required to be withheld pursuant to 150.4995-1 from payments that have been or will be made for oil removed from the premises during that month. However, if the amount withheld by the purchaser from any payment is more than the amount required to be withheld, the amount to be deposited shall be the amount withheld.

(d) Special rules for electing operators and qualified disbursers -- (1) Electors who are also producers. Any operator or qualified disburser who makes the election provided by 150.4995-4 or 150.4995-5 and who is the producer of oil subject to the election shall deposit with respect to that oil by treating the oil as not subject to withholding. However, if section 4995(a)(7)(A)(ii) applies to amounts withheld by the operator electing under 150.4995-4, that section shall also apply to amounts deposited by the operator under the preceding sentence.

(2) Special rules for qualified disbursers. The rules of this subparagraph apply to every qualified disburser making the election provided by 150.4995-5 regardless of whether that qualified disburser is an operator entitled to make (or who has previously made) the election provided by 150.4995-4. Except as provided in the following sentence, a qualified disburser shall deposit both the amount required to be deposited as a purchaser and the liability of the qualified disburser as a producer (if any) in accordance with the rules of paragraph (a) of this section if the qualified disburser is an integrated oil company (other than an independent refiner) and in accordance with the rules of paragraphs (c) and (f) of this section in any other case. However, if, on December 31, 1980, an integrated oil company (other than an independent refiner) was a disburser (as defined in 150.4996-1(j)) with respect to a property, any qualified disburser subsequently undertaking any portion of the distribution responsibility of the integrated oil company shall deposit all amounts attributable to that property in accordance with the rules of paragraph (a) of this section.

(e) Payments by producers to correct underwithholding. If the amount of tax withheld from a producer for a calendar year is less than the total liability of the producer for the tax imposed by section 4986 with respect to oil removed during the calendar year and subject to withholding under 150.4995-1, the producer shall remit the difference with a timely return filed under 150.4997-1 or shall, on or before the last day for filing a return under 150.4997-1, deposit such difference.

(f) Deposits by producers of tax due on oil not subject to withholding -- (1) In general. Except as provided in paragraph (a) (relating to certain integrated oil companies), every producer shall deposit for each calendar month the tax imposed by section 4986 (computed with regard to the net income limitation provided in section 4988(b), if applicable) on the removal in that month of oil that is not subject to withholding under 150.4995-1. The deposits shall be made not later than 45 days after the close of the month in which the oil was removed (or deemed removed under section 4988(c)(4)) from the premises. These deposit requirements will be considered to have been met for a month with respect to estimated deposits, including deposits based upon the producer's estimate of the effect of the net income limitation provided in section 4988(b), only if:

(i)(A) The producer's aggregate deposit liability under this subparagraph (1) for the three months of a taxable period is less than $100 and (B) the producer deposits the amount of tax owed on or before the last day for filing the return required by 150.4997-1 for that taxable period or remits the tax owed with that return; or

(ii)(A) The producer's deposit for the month is not less than 90 percent of the total amount otherwise required by this section to be deposited by it for the month, and (B) the producer complies with the requirements of subparagraph (2) of this paragraph; or

(iii)(A) The producer's deposit for each month of the taxable period is not less than 30 percent of the total amount otherwise required by this section to be deposited by it for the three months of the taxable period, and (B) the producer complies with the requirements of subparagraph (2) of this paragraph; or

(iv)(A) The producer's deposit for the month is not less than 100 percent of the amount required by this section to be deposited by it for the third preceding month (determined without regard to subdivisions (i) through (iv)), and (B) the producer complies with the requirements of subparagraph (2) of this paragraph.

However, subdivisions (iii) and (iv) of this subparagraph shall not apply to any producer that normally incurs in the first month in each taxable period more than 45 percent of its total liability for deposit for the taxable period (determined without regard to subdivision (ii) through (iv)).

(2) Special requirement. If the total liability for the tax imposed by section 4986 for a taxable period exceeds the total amount deposited by the producer pursuant to subparagraph (1) of this paragraph for such taxable period, then the producer shall deposit the difference not later than the last day of the second month following the close of the taxable period.

(g) Special rules applicable to overdeposits -- (1) Purchasers who are not also depositing tax as a producer. If, for any taxable period, a purchaser is not also depositing tax as a producer, the excess (if any) of the purchaser's deposits for a semimonthly period (calendar month in the case of purchasers depositing under paragraph (b) or (c) of this section) with respect to the removal of oil in that semimonthly period (or month) over the amount required to be deposited shall be applied in order of time to each of the purchaser's succeeding semimonthly periods (or months) in the same taxable period, to the extent that the amount by which the purchaser's deposit liability for that period (or month) exceeds the deposit for such subsequent period (or month), until such excess is exhausted.

(2) Treatment of deposits by a producer in excess of liability -- (i) In general. The rules of this subparagraph apply to producers required to deposit tax under paragraph (a) or (f) of this section, including producers who are also depositing as a purchaser. The excess (if any) of a producer's deposits for a semimonthly period (calendar month in the case of producers depositing under paragraph (f) of this section) with respect to the tax imposed by section 4986 on the removal in that semimonthly period (or month) of oil that is not subject to withholding under 150.4995-1 plus the amount deposited as a purchaser for oil removed during that period (or month) over the sum of the tax imposed by section 4986 (computed with regard to the net income limitation) on the removal of oil that is not subject to withholding plus the amount required to be deposited as a purchaser shall be applied in order of time to each of the producer's succeeding semimonthly periods (or months), to the extent that the amount by which the total deposit liability (as a producer and purchaser) for that period (or month) exceeds the deposit for such subsequent period (or month), until such excess is exhausted. The preceding sentence shall not apply to any amount for which the producer files a claim for credit or refund pursuant to 150.6402-1. Furthermore, no amount shall be applied to a deposit for a subsequent semimonthly period (or month) that occurs in a taxable period beginning in a different taxable year (for Federal income tax purposes).

(ii) Examples. The rules of this paragraph and their relationship to the rules of 150.6402-1 may be illustrated by the following examples:

Example (1). A, whose taxable year (for Federal income tax purposes) ends September 30, is the producer of oil from property X. For each taxable period (calendar quarter) within his taxable year ending September 30, 1981, A's windfall profit tax liability, determined without taking the net income limitation into account, is $1,000. The purchaser of A's oil is not required to withhold any windfall profit tax, and for the last taxable period of 1980 A has deposited $1,000. At the beginning of the first taxable period of 1981, A determines that the net income limitation will reduce the windfall profit tax with respect to the oil removed from property X during the taxable year ending September 30, 1981, by approximately 10 percent. Therefore, A concludes that the tax paid for the preceding taxable period (calendar quarter) exceeds his liability for tax for that period, although the exact amount of the excess cannot be determined until the taxable year ends. Under 150.6402-1, A may not claim a refund for the amount of any such excess until the taxable year ends on September 30, 1981. However, paragraphs (a) and (f) of 150.4995-3 do not require deposit of more than the tax imposed by section 4986. Therefore, A may estimate the effect of the net income limitation in determining the amount of windfall profit tax to be deposited for each taxable period. Furthermore, the amount by which the tax deposited by A for a preceding deposit period exceeds the actual liability for that period is treated as deposited for the next period. Accordingly, A deposits a total of $800 for the first taxable period of 1981 and $900 for each of the next two taxable periods. Thus, at the end of the four taxable periods ending within A's taxable year, A has made the following deposits:

October-December 1980, $1,000

January-March 1981, $800

April-June 1981, $900

July-September 1981, $900

After September 30, 1981, A computes his net income limitation for property X and determines that his actual tax liability was $850 for each taxable period. A has satisfied the deposit requirements and is entitled to file a claim for credit or refund of $200.

Example (2). Assume the same facts as in example (1), except that A overestimates the effect of the net income limitation and deposits a total of $600 for the first taxable period of 1981 and $800 for each of the next two taxable periods. After September 30, 1981, A's deposits are as follows:

October-December 1980, $1,000

January-March 1981, $600

April-June 1981, $800

July-September 1981, $800

$150 of the deposits for October, November, and December 1980 is treated as carried over to and deposited in the next taxable period, bringing the total deposit required for Jan-Mar 1981 to $700 (the amount equal to the $850 actual liability less $150 carried from the preceding period). However, due to the overestimation of the effect of the net income limitation, A has not deposited the total liability for that period or the next two taxable periods. Therefore, A is liable for $200 in undeposited tax (the amount equal to $3,400 total liability less $3,200 total deposits) plus interest and penalties (unless A's error was due to reasonable cause).

(iii) Reporting requirements. For the requirement that the producer file quarterly and annual statements if windfall profit tax deposits have been based on an application of the net income limitation provided in section 4988(b), see 150.4997-1

(h) Government depositaries. Deposits required by this section shall be made with a Federal Reserve bank or, at the depositor's election, with an authorized financial institution. See paragraph (h)(2) of this section.

(i) Depositary forms -- (1) In general. A person may make one, or more than one, remittance of the amount required to be deposited. However, a deposit for one taxable period shall be made separately from any deposit for another taxable period.

(2) Tax deposit forms. Each remittance of amounts required to be deposited by this section shall be accompanied by an FTD (Federal Tax Deposit, Excise Taxes) form (Form 504). Such form shall be prepared in accordance with the instructions applicable thereto. The remittance, together with FTD Form 504, shall be forwarded to a financial institution authorized as a depositary for Federal taxes in accordance with 31 CFR Part 214 or, at the election of the person remitting the tax, to a Federal Reserve bank. For procedures governing the deposit of Federal taxes at a Federal Reserve bank see 31 CFR 214.7. The timeliness of the deposit is determined by the date stamped on the Federal Tax Deposit form by the Federal Reserve bank or the authorized financial institution or, if section 7502(e) applies, by the date the deposit is treated as received under section 7502(e). Each person making deposits pursuant to this section shall report on the return for the period with respect to which such deposits are made information regarding such deposits in accordance with the instructions applicable to such return.

(3) Procurement of prescribed forms. Copies of the applicable deposit forms will so far as possible be furnished to purchasers and producers. Such a person will not be excused from making a deposit, however, by the fact that no form has been furnished to it. A person not supplied with the proper form should make application therefor in ample time to make the required deposits within the time prescribed. A person may secure the forms or additional forms by applying therefor and supplying its name, identification number, address, and the taxable period to which the deposits will relate. Copies of FTD Form 504 may be secured by application to a director of an Internal Revenue Service Center.

(Secs. 4995, 4996, 4997, 6050C, 6109, and 7805 of Title 26 of the United States Code (94 Stat. 244, 247, 249-250, and 251, 75 Stat. 828 and 68A Stat. 917; 26 U.S.C. 4995, 4996, 4997, 6050C, 6109, and 7805))

(T.D. 7960, 45 FR 23387, Apr. 4, 1980, as amended by T.D. 7732, 45 FR 73468, Nov. 5, 1980; T.D. 7755, 46 FR 4879, Jan. 19, 1981; 46 FR 16257, Mar. 12, 1981; 46 FR 19935, Apr. 2, 1981)

26 CFR 150.4995-4 Election of purchaser and operator to have operator withhold, deposit tax, etc.

(a) General rule. Pursuant to section 4995(a)(7)(B), it has been determined that the substitution of the operator for the purchaser will make the administration of the windfall profit tax more practicable only when the operator is otherwise required by 150.4995-3 to make deposits as a purchaser of oil produced from a different oil reservoir. Consequently, a purported election pursuant to section 4995(a)(7) is invalid except in that circumstance. In the allowed case, the operator of the property and a purchaser of crude oil produced from that property may make a joint election under this section with respect to oil produced from the entire property or any portion thereof. While the election is in effect, and to the extent of the oil subject to the election, the operator shall be treated as the purchaser for purposes of Chapter 45 (or related provisions of Subtitle F of the Code) and this part and, accordingly, is subject to all of the requirements imposed thereby upon the purchaser (except to the extent that a qualified disburser's election under 150.4995-5 relieves the operator of those requirements). The purchaser shall not be held responsible for failing to meet those requirements. The operator shall promptly notify all producers of oil from that property (or portion) that a joint election has been made and that all information otherwise required to be sent to the purchaser should be sent to the operator. If the operator makes payment for oil produced from the property to a partnership rather than directly to the producers, the notice shall be sent to the partnership. The operator and the purchaser must agree to transfer to the operator responsibility for meeting all the requirements otherwise imposed upon the purchaser in order for the agreement to constitute an effective election.

(b) Method of making election; termination of election. The joint election shall be made by the execution of a document, signed and dated by both the purchaser and operator, that states that both parties have agreed that the operator of the property shall be responsible for all the requirements otherwise imposed upon the purchaser by Chapter 45 (or related provisions of Subtitle F) of the Code or by this part. The purchaser and operator shall, within 10 days of the execution of the document, each forward a copy of the document to the Internal Revenue Service Center for the region with which it files its income tax return. The election shall remain in effect from the date of its execution (or later effective date specified in the election document) until either of the parties executes a document, signed, dated, and delivered to the other party, that declares that the joint election is to be terminated. The termination shall not take effect for at least 60 days after the execution of the termination document unless both the operator and the purchaser agree on an earlier effective date. The party executing the termination document shall promptly notify all producers of oil from that property of the termination and the resulting changes in responsibilities and shall, within 10 days of executing the termination document, forward a copy to the Internal Revenue Service Center for the region with which its income tax return is filed. The party receiving the termination document shall, within 10 days of receipt, forward a copy to the Internal Revenue Service Center for the region with which its income tax return is filed. Both the purchaser and operator shall retain in their records, for so long as they may be material in the administration of any internal revenue law, a copy of the joint election and any subsequent termination.

(Secs. 4995, 4996, 4997, 6050C, 6109, and 7805 of Title 26 of the United States Code (94 Stat. 244, 247, 249-250, and 251, 75 Stat. 828 and 68A Stat. 917; 26 U.S.C. 4995, 4996, 4997, 6050C, 6109, and 7805))

(T.D. 7690, 45 FR 23387, Apr. 4, 1980, as amended by T.D. 7755, 46 FR 4881, Jan. 19, 1981; 46 FR 16257, Mar. 12, 1981)

26 CFR 150.4995-5 Election of qualified disburser to withhold, deposit tax, etc.

(a) In general. Any ''qualified disburser'', as defined in paragraph (b) of this section, may make an election under this section to act as the withholding agent with respect to the oil the sales proceeds of which are distributed by that qualified disburser and to treat as not subject to withholding amounts received for its own production. While the election is in effect, and to the extent of the oil subject to the election, the qualified disburser shall be treated as the purchaser for purposes of Chapter 45 (and related provisions of Subtitle F of the Code) and this part (other than this section), and, accordingly, is subject to all of the requirements imposed thereby upon the purchaser. The qualified disburser shall promptly notify the operator of the property and every payee of any portion of its disbursements that the election has been made and that all information otherwise required to be sent to the purchaser should be sent to the qualified disburser.

(b) Qualified disburser defined. The term ''qualified disburser'' means either:

(1) A disburser (as defined in 150.4995-1 (j)) who distributes 20 percent or more of the entire proceeds from the sale of oil from a property (or a portion of a property if that portion constituted a separate property prior to a unitization or aggregation), exclusive of that person's own share of the proceeds (if any), or

(2) A federally registered partnership as defined in section 6501(o)(4).

(c) Method of making election; termination of election. (1) The election shall be made by furnishing to the purchaser a signed and dated document that states facts that would establish that the person making the election is a ''qualified disburser'' and makes clear that the person has assumed complete responsibility for meeting all the requirements otherwise imposed upon the purchaser by Chapter 45 (or related provisions of Subtitle F) of the Code or by this part (other than this section) with respect to the oil the sales proceeds of which are distributed by the qualified disburser and for treating as not subject to withholding amounts received for its own production. The election document shall set forth the elector's identifying number (employer identification number or, if none, social security account number) and the property subject to the election, including the lease name, location, and identifying number, if any. Form 6458 is provided for this purpose. If the election is made with respect to more than one property, a separate document shall be furnished for each property. Generally, the election shall become effective on the date the election document is furnished to the purchaser (or a later effective date specified in the election document). However, the election may be made retroactively effective with respect to all oil removed after December 31, 1980, if the purchaser and qualified disburser so agree in writing, and if the election is made no later than March 1, 1981. The election shall remain in effect until 60 days after the qualified disburser furnishes the purchaser a signed and dated document that declares that the election is terminated (or a later date specified in the termination document) unless the purchaser agrees in writing to an earlier termination date. The qualified disburser shall promptly notify the operator and all affected producers of the termination and the resulting changes in responsibilities and shall, within 10 days of furnishing the termination document to the purchaser, forward a copy to the Internal Revenue Service Center, Austin, Texas. Both the purchaser and qualified disburser shall retain in their records, for so long as they may be material in the administration of any internal revenue law, a copy of the election document and any subsequent termination document. If a qualified disburser making the election provided by this section receives payment of the sales proceeds of the oil from an intermediate disburser rather than directly from the purchaser, any document required by this section to be furnished to the purchaser shall be furnished to such other disburser. Any person receiving such a document shall furnish a copy to the person from whom that person receives payment and, if any portion of the payments received by that person remains subject to withholding, shall specifiy the share of production to which the document relates.

(2) Any qualified disburser who, acting in good faith, undertook the responsibilities of the purchaser with respect to disbursements made after February 29, 1980, and before January 19, 1981 for oil removed from a property (or portion of a property) and who, on or before February 18, 1981, makes the election provided by this section with respect to oil removed from that property (or portion) may treat the election as being retroactively effective by so stating in the election document. However, the preceding sentence shall not have the effect of retroactively relieving the actual purchaser of any liability for failure to meet the requirements imposed upon the purchaser by Chapter 45 (or related provisions of Subtitle F of the Code) or this part.

(d) Obligation of purchaser to furnish copy of election document to the Internal Revenue Service. Within 10 days of receipt of an election document under this section, the purchaser shall forward a copy to the Internal Revenue Service Center, Austin, Texas.

(e) Status of electing qualified disburser who is also a producer. An electing qualified disburser who is also a producer of oil from the property subject to the election shall comply with all the requirements of this part that are imposed upon a producer whose oil is not subject to withholding (see, e.g., 150.4995-3 (a) and (f) relating to the deposit schedules for producers not subject to withholding; see also, 150.4995-3(d) relating to special deposit rules for certain operators and electing qualified disbursers).

(f) Authority of district director to revoke election, require bond, etc. If the district director for the district in which the principal place of business of the qualified disburser is located determines that the election under this section of any qualified disburser is not in the best interest of the Government in the effective collection and administration of the windfall profit tax, the district director may revoke the election or may permit the election to continue upon compliance with reasonable conditions, such as the posting of a bond. In the case of a revocation, the district director shall promptly notify the purchaser or other affected disbursers of the change in responsibilities.

(g) Examples. The provisions of this section may be illustrated by the following examples:

Example (1). P purchases crude oil from a lease operated by O. P pays 100 percent of the sales proceeds to O who retains 50 percent (the amount attributable to O's share of production) and distributes the remaining 50 percent to all the other producers in accordance with their percentage share of production. Since O is a qualified disburser, O may elect under this section to undertake all the windfall profit tax responsibilities otherwise imposed upon P. If O does elect, O furnishes P the election document and P withholds no windfall profit tax from payments to O. P must submit a copy of the election document to the Internal Revenue Service.

Example (2). Assume the same facts as in example (1) except that one of the producers receiving payment from O is a federally registered partnership. The partnership and O are both qualified disbursers entitled to make the election provided by this section. If the partnership and O both make the election, O must not withhold tax from payments to the partnership and must furnish a copy of the partnership's election document to P together with O's election document. If the partnership makes the election but O does not, O must furnish a copy of the partnership's election document to P. P should withhold tax from payments made to O except for the portion of the payment that is attributable to the partnership's share of production. P must submit to the Internal Revenue Service a copy of any election document received by P.

Example (3). Assume the same facts as in example (1). Assume further that O pays A, a producer, 20 percent of the entire sales proceeds, and that A retains 50 percent of the 20 percent payment from O and distributes the remaining 50 percent to producer B. A is not a qualified disburser because A distributes only 10 percent of the entire proceeds of sale.

Example (4). Assume the same facts as in example (1) except that P directly pays producer C, who has a 20 percent share of production and that the remaining 80 percent is paid to O who retains the 50 percent share attributable to O's share of production and distributes the remaining 30 percent to the other producers. O is a qualified disburser who may make the election provided by this section with respect to the sales proceeds received by O. C, who retains the entire proceeds received from P, is not a qualified disburser. Thus, P must withhold upon the payment to C in accordance with the rules of 150.4995-1.

Example (5). Assume the same facts as in example (1) except that O, after retaining the 50 percent share of the sales proceeds attributable to O's production, distributes the remaining proceeds to producer A. Assume further that A retains 20 percent of the 50 percent payment from O and distributes the remaining 80 percent to other producers. O and A are both qualified disbursers because O distributes 50 percent of the entire sales proceeds and A distributes 40 percent. If both O and A make the election provided by this section, O does not withhold tax from the payments to A and deposits tax with respect to O's own production as a producer whose oil is not subject to withholding.

(T.D. 7770, 46 FR 13509, Feb. 23, 1981)

26 CFR 150.4996-1 Definitions.

For purposes of this part and Chapter 45 of the Code:

(a) Purchaser. The term ''purchaser'' includes only the first person (as defined in section 7701(a)(1)) purchasing production of domestic crude oil.

(b) Producer. (1) Except as otherwise provided in this paragraph, the term ''producer'' means the holder of the economic interest with respect to the crude oil in place in the ground. For this purpose, the term ''economic interest'' has the same meaning as it has for purposes of Subtitle A of the Code. For example, the owner of a production payment shall be treated as the producer only to the extent that the production payment is treated as an economic interest by section 636 (taking into account the effective date of that section).

(2) In the case of a partnership, the partnership's economic interest in the oil shall be allocated among the partners on the basis of each partner's proportionate share of the partnership's income from the crude oil, and the partner to whom the oil is allocated shall be treated as the producer of the oil. In the case of a trust or estate, the entity is the producer rather than the beneficiaries.

(3) In determining the shares of production attributable to a producer who holds a net profits interest and a producer whose economic interest is subject to a net profits interest, paragraph (b)(1) of this section shall apply except that the net profits shall be computed without regard to any reduction in profits attributable to the tax imposed by Chapter 45. The rule stated in the preceding sentence may be illustrated by the following example:

Example. Assume that A holds the entire working interest in a property subject to a 10 percent net profits interest held by B. The contract provides that before the division of net profits A is to recover from oil production all costs, including taxes. The property produces 30 barrels of taxable crude oil sold at $40 per barrel. Expenses total $400 (exclusive of windfall profit tax). Regardless of whether under the contract the term ''taxes'' includes the windfall profit tax, B is taxable as the producer of 2 barrels, the number of barrels attributable to 10 percent of the net profit computed without regard to the windfall profit tax ($1,200 gross proceeds less expenses of $400 equals $800 net profit; 10 percent equals $80 or 2 barrels at $40 per barrel). A is the producer of 28 barrels.

(c) Operator. The term ''operator'' means the person who bears more of the responsibility for the management and operation of crude oil production from the property than any other person. In the case of a business entity, the operator is the entity and not its employee or owner. However, under section 4996(a)(2)(B), another person may be designated as the operator, for purposes of Chapter 45 of the Code, by persons holding 50 percent or more of the total shares of production attributable to operating mineral interests in the property. Such a designation must be made in writing and signed by all persons participating in the designation. A copy of the designation document shall be furnished to the district director for the district in which the principal place of business of the designated operator is located within 30 days of its effective date.

(d) Removed from the premises; deemed removed. (1) Oil is removed from the premises when the oil is physically transported off the premises. The term ''premises'' has the same meaning as it has for purposes of determining gross income from the property under section 613. See 1.613-3(a). However, oil shall not be considered removed from the premises when, prior to sale, it is transported a short distance from the premises to a storage facility where the oil is to be held until sale. In that case, the oil shall be considered to be removed from the premises when it is removed from the storage facility. Except as otherwise provided in this paragraph, if oil is used on the premises or if the manufacture or conversion of crude oil into refined products begins on the premises, the oil shall be treated as removed on the day the use, manufacture or conversion begins. However, oil that is produced and then reinjected into the reservoir or used on the premises to power a production process or production equipment is not removed from the premises so long as the oil is at no time transported from the premises from which it was produced.

(2) Oil used to power a production process or production equipment will not be considered removed from the premises if it is transported from one tract or parcel of land to a contiguous tract or parcel of land, provided that 100 percent of the operating mineral interests (as defined in 1.614-2 (b)) in both tracts or parcels of land is held by the same persons. For purposes of the preceding sentence, in the case of oil produced from a property from which more than one tier of oil (as defined in section 4991) is produced, the oil used to power a production process or production equipment shall be deemed of the higher or highest tier designation to the extent of production in such tier and thereafter of the next lower tier. The rules of this paragraph apply only for purposes of the tax imposed by section 4986.

(e) Taxable period. The term ''taxable period'' means March 1980 and each calendar quarter beginning after March 1980.

(f) Energy regulations. The term ''energy regulations'' means regulations prescribed under section 4(a) of the Emergency Petroleum Allocation Act of 1973 (15 U.S.C. 753(a)) as amended (crude oil price control regulations). See section 4996(b)(8).

(g) Integrated oil company. Except as provided in paragraph (g)(4) of this section, the term ''integrated oil company'' means a taxpayer that is a ''retailer'' or ''refiner'' or a taxpayer who has made the election provided in paragraph (g)(3) of this section.

(1) Retailer. The term ''retailer'' means any taxpayer described in section 613A(d)(2), applying that section on a quarterly basis, i.e., one who directly, or through a related person, sells oil or natural gas (excluding bulk sales to commercial or industrial users) or any product derived from oil or natural gas:

(i) Through any retail outlet operated by the taxpayer or a related person, or

(ii) To any person:

(A) Obligated under an agreement or contract with the taxpayer or related person to use a trademark, trade name, or service mark or name owned by such taxpayer or related person, in marketing or distributing oil or natural gas or any product derived from oil or natural gas, or

(B) Given authority, pursuant to an agreement or contract with the person or related person, to occupy any retail outlet owned, leased, or in any way controlled by the taxpayer or related person.

However, notwithstanding the preceding sentence, this subparagraph shall not apply in any case where the combined gross receipts from the sale of such oil, natural gas, or any product derived therefrom, for the taxable period of all retail outlets taken into account for purposes of this subparagraph do not exceed $1,250,000. For purposes of this subparagraph, sales of oil, natural gas, or any product derived from oil or natural gas shall not include sales made of such items outside the United States, if no domestic production of the person or a related person is exported during the taxable period of immediately preceding taxable period.

(2) Refiner. The term ''refiner'' means any taxpayer described in section 613A(d)(4), applying that section on a quarterly basis, i.e., one who is engaged in the refining of crude oil or is related to a person so engaged, provided that on any day during the taxable period the refinery runs of the person and any related person exceed 50,000 barrels.

(3) Election to be treated as an integrated oil company. Any taxpayer who was an integrated oil company during any taxable period of the current or preceding calendar year may elect, for purposes of administering the windfall profit tax, to be treated as an integrated oil company for some or all of the taxable periods in the current year during which the taxpayer would not otherwise be considered to be an integrated oil company. The election shall be made by filing a document with the Internal Revenue Service Center, Austin, Texas. The document shall state that the election is made and shall set forth the facts that entitle the taxpayer to make the election. The election shall be considered to take effect with the first taxable period beginning after the election document is received by the Internal Revenue Service Center and to remain in effect for all taxable periods until revoked, unless the election document specifies a different effective period. The election may be revoked at any time by filing with the Internal Revenue Service Center, Austin, Texas a document that states that the election is revoked. The revocation shall be effective with the first taxable period beginning after the revocation document is received by the Internal Revenue Service Center unless a later effective date is specified in the revocation document. If an election or revocation document is sent to the service center by mail, it shall be considered received when posted by United States mail, properly addressed, and with sufficient postage.

(4) Special rule. For purposes of administering the windfall profit tax for any taxable period, if a taxpayer is an integrated oil company solely because that taxpayer is related to a person who is an independent refiner (as defined in paragraph (h) of this section), such taxpayer shall not be considered an integrated oil company for that taxable period.

For purposes of this paragraph, the term ''related person'' has the same meaning as in section 613A(d) (2) and (4).

(h) Independent refiner. The term ''independent refiner'' means any taxpayer who is engaged in the refining of crude oil and who

(1) Obtained, directly or indirectly, in the second preceding calendar quarter, more than 70 percent of his refinery input of domestic crude oil (or 70 percent of his refinery input of domestic and imported crude oil) from producers who do not control, are not controlled by, and are not under common control with such refiner, and

(2) Marketed or distributed in such quarter and continues to market or distribute a substantial volume of gasoline refined by him through branded independent marketers or nonbranded independent marketers. The term ''branded independent marketer'' means a person who is engaged in the marketing or distributing of refined petroleum products pursuant to:

(i) An agreement or contract with a refiner (or a person who controls, is controlled by, or is under common control with such refiner) to use a trademark, trade name, service mark, or other identifying symbol or name owned by such refiner (or any such person), or

(ii) An agreement or contract under which any such person engaged in the marketing or distributing of refined petroleum products is granted authority to occupy premises owned, leased, or in any way controlled by a refiner (or person who controls, is controlled by, or is under common control with such refiner),

but who is not affiliated with, controlled by, or under common control with, any refiner (other than by means of a supply contract, or an agreement or contract described in subparagraph (1) (i) or (ii)) and who does not control such refiner. The term ''nonbranded independent marketer'' means a person who is engaged in the marketing or distributing of refined petroleum products, but who is not a refiner, is not a person who controls, is controlled by, is under common control with, or is affiliated with a refiner (other than by means of a supply contract), and is not a branded independent marketer.

(i) Property -- (1) In general. Except as otherwise provided in section 4988(b) (relating to the net income limitation on windfall profit) and in paragraphs (i) (3) and (4) of this section, the ''property'' is determined by reference to the geographical boundaries of the right to produce crude oil as such right existed on January 1, 1972, provided such right was in production in commercial quantities (as defined in paragraph (n) of 51.4996-1 of this chapter) on that date. If such right was not in production in commercial quantities on January 1, 1972, the determination of ''property'' is generally made by reference to the geographical boundaries of the right to produce crude oil when crude oil is first produced thereafter in commercial quantities.

(2) Right to produce. The right to produce crude oil is an operating or working interest. It may arise, for example, from a lease or sublease or from a deed of a fee interest.

(3) Separate properties from single right to produce. (Reserved)

(4) Unitizations. (Reserved)

(5) Examples. The provisions of this paragraph may be illustrated by the following examples (references in the examples to production of crude oil mean production in commercial quantities):

Example (1). A purchased land in 1960 (receiving a standard special warranty deed) and used the land exclusively for farming until 1969 when he drilled a well in the southwest portion of the land. The well began producing crude oil in 1970 and is still in production. In 1973 A executed four oil and gas leases for portions of the land none of which included any area that ever had a producing well and each of which began producing crude oil in 1980. The boundaries of the ''property'' are determined by reference to the geographical boundaries of the fee interest held by A on January 1, 1972, because A's right to produce crude oil on January 1, 1972, was in production on that date.

Example (2). B purchased land in 1960 (receiving a standard special warranty deed) and used the land exclusively for farming. In 1973 B sold the west half of the land. In 1974 B drilled a well in the northeast portion of his land. The well began producing crude oil on February 1, 1974. ''Property'' is determined by reference to the geographical boundaries of B's fee interest on February 1, 1974, because those are the geographical boundaries of the right to produce crude oil when crude oil was first produced. Any ''property'' with respect to the land sold by B in 1973 will be determined by reference to the geographical boundaries of the right or rights pursuant to which crude oil is ultimately produced thereon.

Example (3). C purchased land in 1960 (receiving a standard special warranty deed) and used the land exclusively for farming. In 1970 C granted an oil and gas lease to D on the entire fee interest. In 1973 D drilled a well in the south half of the land. The well began producing crude oil in 1973. In 1974 D granted an oil and gas sublease to E on the north half of his lease. E drilled a well and began producing crude oil in 1974. ''Property'' is determined by the geographical boundaries of D's lease because those are the geographical boundaries of the right to produce crude oil when crude oil was first produced. ''Property'' is not determined by reference to the geographical boundaries of E's sublease because of the crude oil production from D's lease prior to execution of the sublease.

Example (4). On December 31, 1971, F granted an oil and gas lease to G on the north half of his fee interest and an oil and gas lease to H on the south half of his fee interest. Each lease provided that drilling was to commence within 5 years or the lease would expire. On January 1, 1973, G began drilling a well in the land subject to his lease. The well began producing crude oil on January 15, 1973. As of December 31, 1976, no well had been drilled on the land subject to H's lease and H's lease expired. Because F had granted a lease to G that transferred to G before January 1, 1972, the right to produce crude oil, the ''property'' is determined by reference to the geographical boundaries of G's lease. G's lease was a right to produce crude oil pursuant to which the first production of crude oil after January 1, 1972, occurred. Thus the boundaries of G's lease in 1973 constitute the ''property'' for purposes of the windfall profit tax. ''Property'' is not determined by reference to the geographical boundaries of H's lease because no crude oil was produced pursuant to that right to produce crude oil. Also, ''property'' is not determined by reference to the geographical boundaries of that portion of F's fee interest not subject to G's lease (upon expiration of H's lease) because no crude oil has been produced pursuant to that right to produce crude oil.

Example (5). Assume the same facts as in example (4) except that on December 31, 1973, H granted an oil and gas sublease to I on the west half of his lease and an oil and gas sublease to J on the east half of his lease. Under each oil and gas sublease drilling was to commence on the land subject to the sublease within 3 years or the sublease would expire. J drilled a well during February of 1974 which began producing crude oil that month. No production occurred on I's sublease by December 31, 1976, and, at that time, I's sublease expired. Because H's lease did not produce crude oil before H granted oil and gas subleases to I and J, ''property'' is determined by reference to the geographical boundaries of J's sublease. J's sublease was a right to produce crude oil pursuant to which crude oil was actually produced. ''Property'' is not determined by reference to the geographical boundaries of I's sublease because the sublease expired before crude oil was produced pursuant to that right to produce. ''Property'' is not determined by reference to the geographical boundaries of that portion of H's lease that was not subject to J's sublease (land formerly subject to I's sublease) because crude oil was not produced pursuant to H's right to produce crude oil therefrom after the expiration of I's sublease. As in example (4) another ''property'' is determined by reference to the geographical boundaries of G's lease.

Example (6). Assume the same facts as in example (5) except that on January 1, 1977, H granted an oil and gas sublease to K of the portion of his lease that was formerly subject to I's sublease. Under the sublease, K was to commence drilling within 1 year. K drilled a well during May of 1977 which began producing crude oil that month. ''Property'' is determined by reference to the geographical boundaries of K's sublease because there was no crude oil production pursuant to H's lease before H granted oil and gas subleases to I and J nor was there crude oil production pursuant to I's sublease before it expired.

(j) Disburser. The term ''disburser'' means a person receiving payments from the sale of crude oil who is responsible for distributing some or all of the payment to one or more producers of the oil (either directly or through intermediate disbursers).

(k) Other. See section 4996 (b) and (d) for definitions of ''crude oil'', ''barrel'', ''domestic'', ''United States'', ''possession of the United States'', ''Indian tribe'', and ''Alaskan oil from Sadlerochit reservoir''.

(l) Effective dates. Paragraphs (c) and (d)(1) of this section are effective with respect to oil removed from the premises (as defined in 150.4996-1(d) of Treasury Decision 7690) on or after January 1, 1981, and so much of paragraph (g) of this section as precedes subparagraph (1) is effective with respect to oil so removed on or after the date that is 30 days after publication of final regulations under section 4995(b)(3). For the text of those paragraphs as in effect prior to those dates, see T.D. 7690, 45 FR 23384 (April 4, 1980).

(Secs. 4995, 4996, 4997, 6050C, 6109, and 7805 of Title 26 of the United States Code (94 Stat. 244, 247, 249-250, and 251, 75 Stat. 828 and 68A Stat. 917; 26 U.S.C. 4995, 4996, 4997, 6050C, 6109, and 7805))

(T.D. 7690, 45 FR 23387, Apr. 4, 1980, as amended by T.D. 7742, 45 FR 81562, Dec. 11, 1980; T.D. 7755, 46 FR 4882, Jan. 19, 1981; 46 FR 16258, Mar. 12, 1981; T.D. 7846, 47 FR 50858, Nov. 10, 1982)

26 CFR 150.4996-2 Severance tax adjustment.

(a) In general. The severance tax adjustment with respect to any barrel of crude oil is the amount by which any severance tax imposed with respect to that barrel exceeds the severance tax which would have been imposed if the barrel had been valued at its adjusted base price.

(b) Severance tax defined. For purposes of this section, the term ''severance tax'' means any tax imposed by a State (not including a political subdivision of a State) with respect to the extraction of oil that is determined on the basis of the gross value of the extracted oil. The term ''severance tax'' does not include a tax levied on the value of reserves in the ground or a tax levied on the basis of net proceeds from production. Furthermore, a tax on the removal of crude oil from the ground levied as a fixed fee per barrel is not a severance tax because the amount of that tax is not determined by reference to the gross value of the extracted oil.

(c) Limitations -- (1) 15 percent limitation. A severance tax shall not be taken into account to the extent that the total rate thereof exceeds 15 percent.

(2) Increases after March 31, 1979. The amount of a State's severance tax taken into account under paragraph (a) of this section shall not exceed the amount which would have been imposed under that State's severance tax, as in effect on March 31, 1979, unless that excess is attributable to an increase in the rate of the severance tax (or to the imposition of a severance tax) which applies equally to all portions of the gross value of each barrel of oil subject to that tax. For purposes of this subparagraph, the conversion of a tax levied at a fixed fee per barrel into a tax based on the gross value of oil removed constitutes an initial imposition of a severance tax.

26 CFR 150.4996-3 Special rules for post-1978 transfers of property.

(a) In general. The rules of this section apply for all purposes of this part and Chapter 45 of the Code, including the application of the June 1979 energy regulations for purposes of this part and Chapter 45 of the Code.

(b) Classification of oil from property transferred after 1978. If a portion of a property (as defined in paragraph (i) of 150.4996-1) is transferred after December 31, 1978, any crude oil produced from any portion of the property constitutes oil from a stripper well property, newly discovered oil, or heavy oil only if such oil would be so classified if there had not been a transfer. The term ''transfer'' means any sale, exchange, lease, sublease, gift, bequest, devise, or other disposition (including a distribution by an estate, or a contribution to or distribution by a corporation, partnership, or trust, whether or not a taxable event) of rights (including rights less than fee simple) with respect to the property. Thus, for example, a change in the identity of the holder of a lease, mineral rights, royalty rights, or fee simple ownership rights with respect to a portion of the property is a transfer, even if such change is the result of corporate reorganization, gift, devise, or inheritance.

26 CFR 150.4997-1 Returns and recordkeeping.

(a) Returns. Returns with respect to windfall profit taxes imposed by section 4986 shall be made as provided in this section.

(1) Quarterly return. A return for each taxable period (on Form 720, with Form 6047 attached thereto, in accordance with the instructions on those forms) shall be made by the following:

(i) Each purchaser of crude oil required to deduct and withhold tax pursuant to 150.4995-1;

(ii) Each operator of a property or qualified disburser who, having made an election pursuant to 150.4995-4 or 150.4995-5, is required to deduct and withhold tax; and

(iii) Each producer of crude oil the tax with respect to which is excepted from the withholding requirement by a subparagraph of 150.4995-1(a).

(2) Annual return. A return for each calendar year shall be made by each producer of crude oil whose liability for tax with respect to oil that was removed during the four taxable periods of the calendar year exceeds the amount of tax withheld with respect to that oil.

Every producer taking the net income limitation provided by section 4988(b) into account in making windfall profit tax deposits shall file quarterly and annual statements in accordance with forms and instructions provided for the purpose. See 150.6076-1 for the rules relating to the time for filing the returns required by this section.

(b) Recordkeeping requirements. Each taxpayer liable for tax under section 4986, each producer or purchaser of domestic crude oil, each operator of a property from which domestic crude oil was produced, each disburser, and each partnership or other person receiving information on behalf of or providing information to producers under this part shall keep records of all documents, material, and information necessary to the determination of the windfall profit tax or that affect his or her administrative obligations under the Crude Oil Windfall Profit Tax Act of 1980 or the regulations in this part, including material furnished to other persons, as well as information received from other persons. The records shall be kept at all times available for inspection by authorized internal revenue officers or employees, and shall be retained so long as the contents thereof may become material in the administration of any internal law.

(Secs. 4995, 4996, 4997, 6050C, 6109, and 7805 of Title 26 of the United States Code (94 Stat. 244, 247, 249-250, and 251, 75 Stat. 828 and 68A Stat. 917; 26 U.S.C. 4995, 4996, 4997, 6050C, 6109, and 7805))

(T.D. 7755, 46 FR 4883, Jan. 19, 1981, as amended by 46 FR 11284, Feb. 6, 1981)

26 CFR 150.4997-2 Certain information to be furnished by purchaser and others.

(a) In general -- (1) Purchasers. If a purchaser is subject to the rules for collection and deposit of tax under 150.4995-1 and 150.4995-3 with respect to any crude oil purchased (or would be subject to such rules in the absence of an exemption certificate given pursuant to 150.4995-1(b)(3)), such purchaser shall furnish statements in accordance with paragraphs (b), (c), (d) and (e) of this section to each producer of the crude oil purchased, except that, if payment for the oil purchased is made to the operator of the property from which the oil is produced, a partnership, or other disburser (whether or not a ''qualified disburser'', as defined in 150.4995-5) rather than to each producer individually, the statements shall be furnished to the operator, partnership, or other disburser, as the case may be. Such purchaser shall also file the information return required by paragraph (c) of this section with the Internal Revenue Service (in the case of yearly statements).

(2) Operators, partnerships, disbursers. Any person who receives a statement pursuant to paragraph (a)(1) of this section with respect to oil of which such person is not the producer shall, within 15 days of receipt of the statement, furnish to each producer, operator, partnership, or disburser to whom such person makes payment for the oil the information relating to the share of oil attributable to that producer, operator, partnership, or disburser. However, the rule of the preceding sentence shall apply to the statement required by paragraph (b) of this section (relating to monthly statements of tax withheld) to be furnished by a partnership to a partner only if the partner to receive the statement has requested that it be furnished. In the case of a partnership furnishing the statement required by paragraph (c) (Form 6248) or an annual statement required by paragraph (d) directly to any of its partners, the statement shall be furnished by the date that is the later of:

(i) 15 days following receipt of the statement by the partnership, or

(ii) The first April 30 following the end of the year to which the statement relates.

Any person furnishing the statement required by paragraph (c) (Form 6248) shall file a copy with the Internal Revenue Service as an information return. If a person required to furnish a statement or file a return under this paragraph receives more than one statement with respect to the same producer, operator, partnership, or disburser, all such statements may be aggregated in the statement and information return furnished under this paragraph.

(3) Producer's and disburser's identifying numbers. Every person with respect to whom the annual information return prescribed by paragraph (c) of this section (Form 6248) is required to be made by another person and every person who is required to be shown as a member of a related group on another person's independent producer certificate pursuant to 150.4995-2(c)(1) shall furnish to such other person the person's employer identification number, or if an employer identification number has not been assigned, the person's social security account number.

(b) Monthly statement -- (1) In general. The purchaser shall furnish statements for each calendar month showing the total amount of windfall profit tax withheld by the purchaser from payments made to the producer, operator, partnership, or disburser with respect to oil removed during that month. If the purchaser did not withhold tax from payments to that person because of the receipt of an exemption certificate, the monthly statement need only state the reason for the absence of withholding. Where an exempt royalty owner's certificate has been furnished to the pruchaser, the monthly statement to the producer shall also include the number of barrels of oil removed during the month on a property-by-property basis as if the oil had been taxable crude oil.

(2) Time for furnishing monthly statement. Any statement required to be furnished by a purchaser under this paragraph for any calendar month shall be furnished before the first day of the second month which begins after the close of the month to which the statement applies.

(c) Yearly statement of windfall profit tax liability -- (1) In general. For each calendar year, the purchaser shall furnish statements and shall file information returns with the Internal Revenue Service. A separate statement shall be furnished to and a separate information return shall be filed for each producer, operator, partnership, or disburser to whom the purchaser made payments for oil purchased during the calendar year. Each statement and information return shall contain the following information with respect to oil for which that person received payment:

(i) The quantity, removal price, severance tax adjustment, adjusted base price, and windfall profit tax liability (computed without regard to the net income limitation) for taxable crude oil in each tier that was removed during that calendar year;

(ii) The total quantity of the taxable crude oil that was removed during that year;

(iii) The total amount of the windfall profit tax liability incurred with respect to the oil removed during that year;

(iv) The total amount of windfall profit tax withheld by the purchaser with respect to the oil removed during that year; and

(v) The total amount of windfall profit tax withheld by the purchaser from payments made during the calendar year without regard to when the oil was removed.

If the purchaser did not withhold tax from payments to that person because of the receipt of an exemption certificate, the yearly statement and information return shall identify the applicable exemption and set forth the number of barrels that would have been in each tax tier if the oil had been taxable crude oil. For purposes of the preceding two sentences, each category of tier 3 oil, independent producer oil withheld upon at a 50 percent rate, and independent producer oil withheld upon at a 30 percent rate shall be treated as a separate tier.

(2) Additional information in the case of withholding adjustments.

In the case of withholding adjustments that were not completed under paragraph (c) of 150.4995-1, the purchaser shall provide additional information in the yearly statement and information return with respect to the person subject to the adjustment. The statement and information return shall set forth the amount ascertained to have been underwithheld or overwithheld, the amount actually adjusted, and the amount remaining unadjusted. If the adjustment was due to underwithholding, the statement shall also inform the recipient that the producer is liable for the amount of the tax under section 4986 in excess of the amount of such tax withheld by the purchaser. If the withholding adjustment was due to overwithholding, the statement shall inform the recipient that the purchaser was unable to fully adjust the overpayment under paragraph (c) of 150.4995-1 and that the producer is eligible for a credit or refund which he may claim in accordance with the rules provided in 150.6402-1.

(3) Producers not subject to withholding. Every producer of oil not subject to withholding under 150.4995-1 shall file the information return with respect to that oil that would otherwise have been required to be filed by the purchaser.

(4) Prescribed form. The statement and information return required by this paragraph shall be furnished and filed on Form 6248. The statement and return shall also contain such other information as is required by the form or its instructions. The statement shall be furnished in duplicate. The information return shall be filed in the place and in the manner provided in the instructions to Form 6248.

(5) Time for furnishing yearly statement of windfall profit tax liability and filing yearly information returns. Each yearly statement required to be furnished by a purchaser under this paragraph for any calendar year shall be furnished on or before March 31 of the year immediately following the calendar year to which the statement applies, and each yearly information return required to be filed by a purchaser shall be filed on or before April 30 of that year.

(6) Correction of errors in statements and returns. If a person required to furnish a statement or file a return under this paragraph ascertains after the statement has been furnished or the return filed that the person has made an error on the statement or return such person shall correct the error within 60 days of ascertaining the error by furnishing a corrected statement and filing a corrected return. On the other hand, where it is ascertained that the statement or return contains an inaccuracy not within the control of such person (e.g., where a producer's certificate provided to such person is incorrect), such person shall correct the inaccuracy not later than the next following date for furnishing such a statement or filing such a return by either furnishing a corrected statement and filing a corrected return or by indicating the correction on the statement furnished and return filed for the year within which the error was ascertained.

(7) Identifying numbers. Any person required to make an information return with respect to any other person under this paragraph shall request from that other person that person's identifying number (employer identification number or, if none, social security account number) and shall include that number in the information return. Furthermore, any person required to make an information return that is based, in whole or in part, upon information received from another person shall include that other person's identifying number in the information return.

(d) Detailed statement to be furnished upon request. (1) Any producer, operator, partnership, or disburser receiving sales proceeds from which windfall profit tax has been withheld or an exempt royalty certificate has been given may furnish the person from whom the proceeds are received a written request for some or all of the following information: The quantity of oil in each tax tier and the removal price, severance tax adjustment, adjusted base price, and tax rate applicable to that quantity. The information request may specify that the information is requested either on a property-by-property basis or in the aggregate. If an exempt royalty certificate has been given to the person receiving such a request, such person shall provide the information requested as if the oil removed had been taxable crude oil. Any person receiving such a request who has made payments to the person making the request shall provide the requested information for the period and at the time specified in paragraph (d)(2).

(2) For taxable periods beginning after December 31, 1980, if the information request specifies that the information is requested for each taxable period, the information shall be provided for each taxable period not later than the last day of the second month following the end of the taxable period. If the information request states that the person requesting the information has an income tax year (for Federal income tax purposes) that ends on a date other than the last day of a calendar quarter and states the date on which the taxable year ends, the information for the taxable period within which the taxable year (for Federal income tax purposes) ends shall be provided for each month in that period. In any other case, the requested information shall be provided for each calendar year not later than March 31 of the following calendar year.

(e) Suspended accounts. If, due to the fact that the identity of the producer is not known or is in dispute, the sales proceeds of oil have been placed in escrow or otherwise held in suspense and have not been distributed to the producer at the time that the information return is required to be filed under paragraph (c), a return for each such account shall be filed with an indication that the return relates to suspended funds. At the filer's option, some or all of the returns may be aggregated into a single return. Not later than 60 days after the sales proceeds have been released to the producer, an information return shall be filed with an identification of the producer, and the statements required by paragraphs (c) and (d) of this section for past periods shall be furnished to the producer.

(f) Cross reference. For the requirement that the operator or qualified disburser furnish the statements and file the returns required by this section in the event that the election has been made to have the operator or qualified disburser deduct and withhold tax, etc. see 150.4995-4 and 150.4995-5.

(Secs. 4995, 4996, 4997, 6050C, 6109, and 7805 of Title 26 of the United States Code (94 Stat. 244, 247, 249-250, and 251, 75 Stat. 828 and 68A Stat. 917; 26 U.S.C. 4995, 4996, 4997, 6050C, 6109, and 7805))

(T.D. 7755, 46 FR 4884, Jan. 19, 1981; 46 FR 16258, Mar. 12, 1981; T.D. 7811, 47 FR 8997, Mar. 3, 1982)

26 CFR 150.6050C-1 Information furnished by operator for purposes of windfall profit tax.

(a) In general. The operator of any property from which domestic crude oil is removed during a calendar month shall furnish a monthly statement, signed under the penalties of perjury if the statement is furnished to the purchaser, certifying the information specified in paragraph (b) of this section to:

(1) The purchaser of the oil, if the purchaser is required to withhold tax from payments for the oil pursuant to 150.4995-1 (see paragraph (e) of this section for the requirement that the statement be furnished to a qualified disburser), or

(2) The producer, in any other case, except that if the producer of oil is a partner in a partnership, this statement may be furnished to the partnership if the producer and the partnership so agree. In that case, the partnership shall furnish the information to the producer with respect to that producer's share of the oil within 15 days of receipt.

(b) Information to be certified. In the case of exempt Alaskan oil or exempt front-end oil, the statement shall certify that the oil is exempt from tax. In all statements not certifying exemption, the following information is to be certified in the statement required under paragraph (a) of this section:

(1) The tier, for purposes of the tax imposed by section 4986, of the oil removed during the month and, if the oil is tier 3 oil, whether the oil constitutes newly discovered oil, heavy oil, or incremental tertiary oil;

(2) The amount of the oil removed and, if the oil removed includes oil of different tiers or categories, the amount of oil removed of each tier or category;

(3) The adjusted base price (within the meaning of section 4989) for each tier of oil removed;

(4) The severance tax adjustment, if any, provided under section 4996(c) with respect to each tier of oil removed;

(5) The TAPS adjustment, if any, provided under section 4996(d), and the average removal price for the month, in the case of oil from the Sadlerochit Reservoir;

(6) The property from which the oil was removed.

In the case of a statement furnished to a purchaser, the operator shall provide the information with respect to the aggregate amount of oil sold to that purchaser removed during the month. In the case of a statement furnished to a producer or partnership, the operator shall provide the information with respect to that person's allocable share of all oil removed from the premises during the month (including any oil delivered in kind to that producer).

(c) Time and manner of certifying information. The operator shall furnish the statement required under paragraph (a) of this section to the purchaser or producer, as the case may be, no later than the fifteenth day of the month following the calendar month in which the oil was removed. However, the statement with respect to oil removed during March 1980 shall be furnished no later than April 25, 1980.

(d) Agreement between operator and recipient of statement. If the purchaser or producer agrees in a signed statement that the operator shall be relieved of the duty of furnishing to such purchaser or producer:

(1) The statement otherwise required under paragraph (a) of this section, or

(2) Some or all of the information required under paragraph (b) of this section,

the operator shall be relieved of such duty, provided that the purchaser or producer has the information necessary to comply with all of the requirements of this part without such statement or information. Such an agreement shall immediately cease to have effect when the operator, purchaser, or producer, by a written statement signed by an authorized person, notifies the other party that it is terminating the agreement.

(e) Special rule. If an election under 150.4995-5 is in effect under which a qualified disburser assumes the obligations of the purchaser, the statement otherwise required by this section to be furnished to the purchaser shall be furnished to the qualified disburser.

(f) Producer's certificate. For the requirement that certain operators furnish producer certificates to purchasers, see 150.4995-2(e).

(g) Penalties. See sections 6652(b), 7206, and 7241 (relating to civil and criminal penalties).

(Secs. 4995, 4996, 4997, 6050C, 6109, and 7805 of Title 26 of the United States Code (94 Stat. 244, 247, 249-250, and 251, 75 Stat. 828 and 68A Stat. 917; 26 U.S.C. 4995, 4996, 4997, 6050C, 6109, and 7805))

(T.D. 7690, 45 FR 23387, Apr. 4, 1980, as amended by T.D. 7694, 45 FR 27932, Apr. 25, 1980, T.D. 7755, 46 FR 4885, Jan. 19, 1981; 46 FR 16258, Mar. 12, 1981)

26 CFR 150.6076-1 Time for filing return of windfall profit tax.

Each quarterly return required by paragraph (a)(1) of 150.4997-1 shall be filed not later than the last day of the second month following the close of the taxable period. Each annual return required by paragraph (a)(2) of 150.4997-1 shall be filed not later than May 31 of the first year following the close of the calendar year in which the oil giving rise to the underpayment was removed.

(Secs. 4995, 4996, 4997, 6050C, 6109, and 7805 of Title 26 of the United States Code (94 Stat. 244, 247, 249-250, and 251, 75 Stat. 828 and 68A Stat. 917; 26 U.S.C. 4995, 4996, 4997, 6050C, 6109, and 7805))

(T.D. 7755, 46 FR 4886, Jan. 19, 1981)

26 CFR 150.6232(c)-1 Partnership authorized to act on behalf of partners for removal year 1983 or 1984.

(a) Overview of partnership authority and responsibilities -- (1) In general. Except to the extent otherwise provided in paragraph (a) (2) and (3) of this section, the partnership, acting through its tax matters partner, shall be authorized to act on behalf of its partners in the determination, assessment, and collection of the windfall profit tax for removal year 1983 or 1984 if the partnership elects to do so in accordance with the requirements of 150.6232 (c)-2 (b). If the partnership elects to act on behalf of the partners in this regard the partnership's responsibilities to file with the Service and furnish to the partner any information, statement, or return are set forth in this section. If the partnership does not elect to act on behalf of the partners, it shall file with the Service and furnish to the partners any information, statement, or return required by other provisions of this part or by Part 51 of this chapter in the time and manner prescribed by those regulations.

(2) Partnership authority negated by ''5-percent election.'' The authority of the partnership to act on behalf of the partners with respect to the windfall profit tax is negated if partners who in the aggregate own at least a 5-percent interest in the income of the partnership make the election provided in 150.6232(c)-3. See paragraph (d) of this section for the responsibilities of the partnership in the event that a 5-percent election is made.

(3) Partnership authority negated by ''individual election.'' The authority of the partnership to act on behalf of a particular partner with respect to the windfall profit tax is negated if that partner makes the election provided in 150.6232(c)-4. See paragraph (c) of this section for the responsibilities of the partnership with respect to a partner who makes the ''individual election.''

(4) Rules applicable to partner not represented by partnership. For rules applicable to a partner when the partnership authority to act on behalf of the partner is negated by an election under 150.6232(c)-3 or 150.6232(c)-4, see 150.6232(c)-5.

(b) Partnership responsibility with respect to partner who does not elect to negate the authority of the partnership to act on its behalf -- (1) In general. If the partnership elects to be treated as authorized to act on behalf of the partners and no 5-percent election is made is accordance with 150.6232(c)-3, this paragraph (b) shall apply with respect to any partner who has not made an individual election under 150.6232(c)-4 to negate the authority of the partnership.

(2) Information to be furnished to partner -- (i) Information in lieu of Form 6248. The partnership is not required to furnish the partner a Form 6248. Instead, the partnership shall furnish the partner a statement indicating the partner's allocable share of the windfall profit tax paid or withheld during removal years 1983 (or 1984, as the case may be). See 150.6232(c)-2 for the time for furnishing this statement to the partners.

(ii) Later adjustments. If the partnership --

(A) Pays any additional windfall profit tax, or

(B) Receives any credit or refund of windfall profit tax paid or withheld, with respect to a partner's share of partnership production for removal year 1983 (or 1984, as the case may be), the partnership shall notify the partner of the adjustment so that the partner may take the amount of the adjustment into account appropriately for income tax purposes. The partnership shall provide this notice at the same time as the partnership furnishes information to the partner with respect to windfall profit tax withheld or paid during the removal year in which the adjustment occurs.

(3) Partnership required to file Form 6248 with Service. The partnership shall furnish a Form 6248 with respect to the partner to the Austin Service Center (at the address specified in paragraph (e) of this section) by the first August 31 following the year to which the form relates. This Form 6248 shall show the amount of windfall profit tax allocable to the partner that was actually withheld or paid during 1983 (or 1984, as the case may be) and any adjustment made by the partnership with respect to that partner to eliminate any overpayment or underpayment. The partnership shall furnish a separate Form 6248 for each partner; the partnership is not permitted to submit an aggregate Form 6248 for all partners.

(4) Partnership shall pay tax or file claim for credit or refund -- (i) In general. The partnership shall compute the windfall profit tax liability of a partner with respect to partnership production (taking into account the net income limitation and the partner's independent producer amounts and exemptions) for the removal year. On or before the date on which the partnership furnishes to the Service the Form 6248 with respect to a partner under paragraph (b)(3) of this section, the partnership shall file with the Austin Service Center (at the address set out in paragraph (e) of this section) a Form 720, Quarterly Federal Excise Tax Return, with Form 6047, Windfall Profit Tax, attached and pay any additional tax owed with respect to the partner. The partnership may also, at any time within the applicable period of limitations, file a Form 843, Claim, and claim any credit or refund due with respect to the partner. The partnership is not authorized to seek any adjustment in withholding to offset any overpayment of windfall profit tax during 1983 or 1984.

(ii) Partnership may file aggregate return or claim. The partnership may file an aggregate return or claim for refund on behalf of all partners for whom the partnership is authorized to act. The partnership shall attach to the aggregate return or claim a statement showing the amount of the underpayment or overpayment allocable to each partner. If partners hold identical ''unit'' interests and the underpayment or overpayment with respect to each ''unit'' is the same, the partnership may state the underpayment or overpayment with respect to a ''unit,'' identify each person holding a ''unit,'' and specify the number of ''units'' held by each person.

(iii) Partnership to assume that partner certifications are correct. For purposes of computing the windfall profit tax liability of a partner, the partnership shall treat as correct certifications furnished by the partner as to the partner's producer status. Accordingly, if the partner certifies that the partner is an independent producer or a qualified royalty owner, the partnership shall assume that the partner is in fact an independent producer or a qualified royalty owner in computing the partner's liability.

(iv) Partner barred from filing claim based on partnership items. The partnership has an exclusive right to file a claim for refund of an overpayment of windfall profit tax if the overpayment arises from partnership items. The partner may file a claim for refund only if the overpayment arises from nonpartnership items; for example, the partner may file a claim for refund on the grounds that the partner is an independent producer but failed to certify that fact to the partnership.

(5) Partnership shall represent partner in all proceedings. The tax matters partner shall represent the partner in all administrative and judicial proceedings with respect to partnership items. Therefore, the partner shall not be permitted to participate in these proceedings or be entitled to receive the notices described in section 6223(a). The tax matters partner shall not be required to keep the partner informed of administrative or judicial proceedings. However, the partnership shall furnish to the partner upon request any and all windfall profit tax information necessary for the verification of the tax computed by the partnership or the determination of the partner's entitlement to independent producer lower rates or royalty owner exemptions.

(6) Settlement authority. Any settlement entered into by the tax matters partner is binding on the partner. The partner is not permitted to enter into a separate settlement with the Service; accordingly, the partner is not permitted to request consistent settlement terms under section 6224(c).

(c) Partnership responsibilities with respect to partner who has made an individual election -- (1) In general. If the partnership makes the election described in 150.6232(c)-2 to act on behalf of the partners and no 5-percent election is made, this paragraph (c) shall apply with respect to any partner who makes the individual election under 150.6232(c)-4 to negate the authority of the partnership.

(2) Partnership shall furnish Form 6248. The partnership shall furnish a Form 6248 with respect to the partner to the Austin Service Center (at the address specified in paragraph (e) of this section) and to that partner by the first August 31 following the year to which the form relates. Because the partnership is not authorized to make any adjustment to eliminate an overpayment or underpayment with respect to the partner, the Form 6248 will not show any adjustment made by the partnership.

(3) Partnership may not file return or claim on behalf of partner. The partnership may not file any return (Form 720) or any claim for credit or refund (Form 843) on behalf of the partner.

(4) Partnership does not represent partner in proceedings. Unless otherwise agreed upon between the partner and the partnership, the partnership shall not represent the partner in administrative or judicial proceedings to determine the proper treatment of partnership items with respect to the windfall profit tax.

(d) Partnership responsibilities in event 5-percent election is made. If the partnership elects to act on behalf of the partners in accordance with 150.6232 (c)-2 but a 5-percent election is made to negate that authority, the partnership shall furnish a Form 6248 with respect to each partner in the partnership to the Service and to the partner by the first August 31 following the year to which the form relates. The Forms 6248 furnished to the Service shall be filed with the service center designated on that form. The partnership will not be permitted to make any adjustments with respect to the partners under these circumstances.

(e) Address of Austin Service Center. The address of the Austin Service Center to be used for purposes of this section and 150.6232 (c)-2 through 150.6232 (c)-5 is: Internal Revenue Service Center, WPT Staff, P.O. Box 1231, Austin, Texas 78767, Stop 89.

(f) Extension of time for filing return. Any provision in this section or in 150.6232 (c)-5 (b) that permits any return to be filed or a payment to be made later than the date otherwise prescribed for the filing of that return or the making of that payment by the Code or the regulations operates as an automatic extension of the period otherwise prescribed.

(Secs. 6232 and 7805 of the Internal Revenue Code of 1954 (96 Stat. 666, 26 U.S.C. 6232; 68A Stat. 917, 26 U.S.C. 7805))

(T.D. 7985, 49 FR 40806, Oct. 18, 1984)

26 CFR 150.6232(c)-2 Election to act on behalf of partners for removal year 1983 or 1984.

(a) In general. The partnership may elect to be treated as authorized to act for each partner of the partnership for removal year 1983 or 1984 by furnishing the notice described in paragraph (b) of this section. This election is an annual election. The partnership must furnish a separate notice for each removal year for which the partnership wishes to make this election.

(b) Notice to the Service -- (1) Content of notice. The partnership shall furnish to the Internal Revenue Service a notice that states that the partnership intends to --

(i) Act on behalf of all partners in any judicial or administrative proceeding with respect to partnership items for windfall profit tax purposes;

(ii) Pay on behalf of the partners any additional windfall profit tax determined to be due to reflect the proper treatment of partnership items;

(iii) Receive on behalf of the partners any credit for, or refund of, any overpayment of windfall profit tax attributable to partnership items; and

(iv) Reimburse the Service upon request for any duplicate refund made to a partner.

(2) Time and place for filing. The notice shall be furnished to the Austin Service Center (at the address specified in 150.6232(c)-1(e)) on or before the first March 31 following the year to which the election relates. The notice shall identify the partnership by name, address, and identification number and shall be signed by a person authorized to sign the Form 1065.

(c) Notice to the partners -- (1) In general. A partnership that makes an election by filing a notice under paragraph (b) of this section shall furnish to each partner of the partnership, by the first March 31 following the year to which the election relates, a notice that includes the information contained in the notice under paragraph (b) of this section.

(2) Further information required. In addition the notice shall --

(i) Inform each partner of the partner's allocable share of the windfall profit tax paid or withheld during 1983 (or 1984, as the case may be) with respect to partnership production (so that the partner may claim an income tax deduction for that amount);

(ii) Explain the right of any partner or any group of partners holding a 5-percent or greater interest in the income of the partnership to negate the authority of the partnership to act on behalf of all partners by filing a notice in accordance with 150.6232(c)-3; and

(iii) Explain the right of each partnership individually to elect not to have the partnership act on behalf of that partner by filing a notice in accordance with 150.6232(c)-4.

(Secs. 6232 and 7805 of the Internal Revenue Code of 1954 (96 Stat. 666, 26 U.S.C. 6232; 68A Stat. 917, 26 U.S.C. 7805))

(T.D. 7985, 49 FR 40807, Oct. 18, 1984)

26 CFR 150.6232(c)-3 ''5-percent'' election for removal year 1983 or 1984.

(a) In general. Any partner or group of partners owning in the aggregate at least 5 percent of the income interest of the partnership may elect to negate the authority of the partnership to act on behalf of the partners for removal year 1983 or 1984 by filing a written notice to that effect.

(b) Procedure for making election -- (1) Time and place for filing. The notice described in paragraph (a) of this section shall be filed with the Austin Service Center (at the address specified in 150.6232(c)-1(e)) on or before the first June 30 following the year to which the election relates.

(2) Content of notice. The notice shall --

(i) Identify the partnership by name, address, and identification number;

(ii) Identify the partners forming the 5-percent group by name, address, identification number, and percentage interest in the partnership;

(iii) Be signed by all members of the group making the election; and

(iv) Be clearly identified as an election to negate the authority of the partnership to act for all partners.

Any notice not clearly identified as a notice of election under this section shall be treated as an individual election under 150.6232(c)-4. Thus, for example, a notice by a single partner owning a 5-percent interest that is not clearly identified as an election to negate the authority of the partnership to act for all partners shall be treated as an individual election under 150.6232(c)-4.

(3) Copy for partnership. A copy of the notice shall be furnished to the partnership.

(Secs. 6232 and 7805 of the Internal Revenue Code of 1954 (96 Stat. 666, 26 U.S.C. 6232; 68A Stat. 917, 26 U.S.C. 7805))

(T.D. 7985, 49 FR 40807, Oct. 18, 1984)

26 CFR 150.6232(c)-4 Individual election for removal year 1983 or 1984.

(a) In general. Any partner desiring that the partnership not be authorized to act on its behalf for removal year 1983 or 1984 shall file a notice in accordance with the rules set forth in this section.

(b) Procedure for making election -- (1) Time and place for filing. The notice described in paragraph (a) of this section shall be filed with the Austin Service Center (at the address specified in 150.6232(c)-1(e)) on or before the first June 30 following the year to which the election relates.

(2) Content of notice. The notice shall clearly identify the partner and the partnership by name, address, and identification number and shall state that it constitutes an election to deny the partnership the right to represent the partner in proceedings related to windfall profit tax on partnership production during 1983 (or 1984, as the case may be). The notice shall be signed by the partner.

(3) Copy for partnership. A copy of the notice shall be furnished to the partnership within the period prescribed for filing the notice.

(Secs. 6232 and 7805 of the Internal Revenue Code of 1954 (96 Stat. 666, 26 U.S.C. 6232; 68A Stat. 917, 26 U.S.C. 7805))

(T.D. 7985, 49 FR 40808, Oct. 18, 1984)

26 CFR 150.6232(c)-5 Partner responsibility when partnership authority is negated for removal year 1983 or 1984.

(a) In general. If the partnership makes an election under 150.6232(c)-2 to act on behalf of the partners for removal year 1983 or 1984, this section shall apply with respect to --

(1) All partners if an election under 150.6232(c)-3 is made, and

(2) Any partner who makes an election under 150.6232(c)-4.

(b) Partner shall pay additional tax or claim credit or refund. The partner shall aggregate the Form 6248 information received from the partnership with Form 6248 information received from other sources to determine whether a net overpayment or underpayment of windfall profit tax exists for the partner's interests in oil properties. If a net underpayment exists, the partner shall file Form 720 with the service center designated on that form and pay any tax due by the first October 31 following the year to which the election relates. See 150.6232(c)-1((f), relating to extension of time for filing a return and paying tax. If a net overpayment exists, the partner may file a Form 843 or any other appropriate form to claim a credit or refund in accordance with the applicable instructions.

(c) Partners in same position as under rules for income tax proceedings. The partner retains any right with respect to the determination of the tax treatment of partnership items for windfall profit tax purposes that the partner would possess with respect to similar determinations for income tax purposes under sections 6221 through 6231 and the regulations under those sections. For example, the partner is entitled to receive notice of the proceedings from the tax matters partner or the Service if that partner is entitled to receive notice under section 6223 of the Code, and the partner is entitled to participate in any administrative or judicial proceeding. Similarly, a settlement agreement entered into between the Service and the tax matters partner is binding on the partner if a settlement entered into under section 6224(c) of the Code would be binding on the partner.

(Secs. 6232 and 7805 of the Internal Revenue Code of 1954 (96 Stat. 666, 26 U.S.C. 6232; 68A Stat. 917, 26 U.S.C. 7805))

(T.D. 7985, 49 FR 40808, Oct. 18, 1984)

26 CFR 150.6402-1 Credit or refund of overpayment of windfall profit tax.

(a) In general. Any purchaser or producer who pays, or is deemed to have paid under section 4995(a)(4), more than the correct amount of the crude oil windfall profit tax imposed by Chapter 45 for a taxable period may file a claim for refund of the overpayment or may claim credit for such overpayment, in the manner and subject to the conditions stated in this section and 301.6402-2 of this chapter (Regulations on Procedure and Administration).

(b) Overpayments by purchasers and by producers depositing tax -- (1) In general. If, for any taxable period, a purchaser or a producer (or a person acting in both capacities) has paid more than the sum of the amount required to be deposited as a purchaser for oil removed during that taxable period plus the amount of tax imposed by section 4986 (computed without regard to the net income limitation on windfall profit provided in section 4988(b)) on the removal in that taxable period of oil that is not subject to withholding, the purchaser or producer may file a claim for refund of that overpayment on or after the date for filing the return of such tax for such taxable period under section 6076 or may claim credit for such overpayment against any liability for a tax imposed by Chapter 1 or 45 in accordance with the forms and instructions provided for that purpose.

(2) Producers; net income limitation. Except as provided in paragraph (b)(1), if, for any taxable period, a producer has paid more than the amount of tax imposed by section 4986 (computed with regard to the net income limitation provided in section 4988(b)) on the removal in that taxable period of oil that is not subject to withholding, the producer may file a claim for credit or refund of that overpayment only after the end of the producer's taxable year (for Federal income tax purposes) with respect to which the limitation is computed. At that time, the producer may claim a credit or refund of the overpayment as provided in paragraph (b)(1) of this section.

(3) Purchasers unable to recover underwithholding through subsequent overwithholding. A purchaser who withheld less than the amount required to be withheld from a payment under 150.4995-1, who deposited the amount required to be withheld, and who has not corrected the underwithholding pursuant to 150.4995-1(c) before the expiration of the adjustment period, may file a claim for refund of the excess of the amount deposited over the amount withheld if the amount claimed has been reported as underwithholding on the appropriate Form 6248 furnished and filed pursuant to 150.4997-2(c). The claim for refund shall be filed on Form 843.

(c) Overpayments attributable to amounts deducted and withheld -- (1) In general. Under section 4995(a)(4), the producer of oil is treated as having paid any amount withheld on the last day of the first February after the calendar year in which the oil was removed from the premises. Therefore, if the sum of the producer's liability for the tax imposed by section 4986 (computed without regard to the net income limitation provided in section 4988(b)) on oil subject to withholding under 150.4995-1 for all taxable periods of a calendar year is less than the amount deducted and withheld from the producer under 150.4995-1 with respect to oil removed during the calendar year, an overpayment of tax exists after such last day of February. The producer may file a claim for refund of the overpayment or may claim credit for the overpayment against any liability for a tax imposed by Chapter 1 or 45 in accordance with the forms and instructions provided for that purpose. The producer shall attach to the claim a copy of all Forms 6248 furnished to the producer pursuant to 150.4997-2.

(2) Net income limitation. Except as provided in paragraph (c)(1), if the sum of the producer's liability for the tax imposed by section 4986 (computed with regard to the net income limitation provided in section 4988(b)) on oil subject to withholding under 150.4995-1 for any taxable period is less than the sum of the amounts deducted and withheld from the producer under 150.4995-1 with respect to oil removed in that taxable period, the excess may be claimed as a credit or refund only after the later of:

(A) The last day of the first February after the end of the taxable period, or

(B) The last day of the producer's taxable year (for Federal income tax purposes) with respect to which the limitation is computed.

Thereafter, the producer may file a claim for credit or refund of the overpayment as provided in paragraph (c)(1) of this section.

(d) Special interim rule for exempt producers. If a producer of any crude oil from a qualified governmental interest (as defined in section 4994(a)) or qualified charitable interest (as defined in section 4994(b)), or a producer of exempt Indian oil (as defined in section 4994(d)), has had tax withheld from payments made for oil removed before July 1, 1980, the producer may file a claim for refund on or after July 1, 1980. The claim shall be filed on Form 843 and shall have attached a copy of each monthly statement received pursuant to 150.4997-2.

(e) Examples. The rules of this section may be illustrated by the following examples:

Example (1). Under 150.4995-1, the purchaser of oil from producer A is not required to deduct and withhold any tax from payments made to A. Consequently, A deposited a total of $1,100 for a certain taxable period. After the end of the taxable period, it is determined that the tax imposed by section 4986, computed without regard to the net income limitation, is $1,000. A estimates that, due to the net income limitation, the actual liability is only $900. Under paragraph (b)(1) of this section, A may file a claim for credit or refund of $100 (the amount by which the $1,100 deposit exceeds the $1,000 tax imposed by section 4986, computed without regard to the net income limitation). Under paragraph (b)(2) of this section, A may claim credit or refund of any overpayment due to the application of the net income limitation only after A's taxable year (for Federal income tax purposes) has ended. However, see 150.4995-3(g)(2) for rules relating to estimated tax deposits.

Example (2). Producer B's taxable year for income tax purposes is the calendar year. Due to the application of the net income limitation, the amount of windfall profit tax withheld from B exceeds B's liability for each of the four taxable periods of the calendar year. B may file a claim for credit or refund of the overwithheld tax after the last day of February following the end of the calendar year.

Example (3). Producer C's taxable year for income tax purposes ends on June 30. Due to the application of the net income limitation, C's windfall profit tax has been overwithheld for each of the four taxable periods within C's taxable year ending June 30, 1981. C may claim credit or refund after June 30, 1981, for the overpayment attributable to oil removed during the last two taxable periods of calendar year 1980 (July-September and October-December 1980), because by that time C has been deemed, under section 4995(a)(4), to have paid the tax with respect to those taxable periods, and the taxable year in which the oil was removed has ended. However, C must wait until after February 28, 1982, to claim credit or refund for the overpayment attributable to oil removed during the first two taxable periods of calendar year 1981 (January-March and April-June 1981).

Example (4). Assume the same facts as in example (3), except that the purchaser of C's oil made an error and overwithheld tax during the last taxable period of calendar year 1980. The error remained unadjusted when the purchaser furnished C the annual information statement under 150.4997-2. After February 28, 1981, C may file a claim for credit or refund of the amount overwithheld due to the withholding error. However, C may not claim a credit or refund for the overpayment due to the application of the net income limitation until the dates specified in example (3).

Example (5). Assume the same facts as in example (3), except that C's taxable year ends on August 31, and the overpayment due to the net income limitation relates to C's taxable year ending August 31, 1981. C may claim a credit or refund after August 31, 1981, for the overpayment attributable to oil removed during the last two taxable periods of calendar year 1980. After February 28, 1982, C may claim credit or refund for the overpayment attributable to oil removed during the first three taxable periods of calendar year 1981. However, that claim may only reflect overpayments due to the application of the net income limitation for oil removed through August 1981 because the last month of the third taxable period of 1981 (September 1981) is in C's next income tax year.

(f) Cross-reference. For examples illustrating the interrelationship of 150.4995-3 (relating to depositary requirements) and this section, see 150.4995-3(g)(2)(ii).

(Secs. 4995, 4996, 4997, 6050C, 6109, and 7805 of Title 26 of the United States Code (94 Stat. 244, 247, 249-250, and 251, 75 Stat. 828 and 68A Stat. 917; 26 U.S.C. 4995, 4996, 4997, 6050C, 6109, and 7805))

(T.D. 7690, 45 FR 23387, Apr. 4, 1980, as amended by T.D. 7732, 45 FR 73469, Nov. 5, 1980; T.D. 7755, 46 FR 4886, Jan. 19, 1981)

26 CFR 150.6402-1 PART 155(RESERVED)

26 CFR 150.6402-1 PART 156 -- EXCISE TAX ON GREENMAIL

26 CFR 150.6402-1 Subpart A -- Tax on Greenmail

Sec.

156.5881-1 Imposition on excise tax on greenmail.

26 CFR 150.6402-1 Subpart B -- Procedure and Administration

156.6001-1 Notice or regulations requiring records, statements, and special returns.

156.6011-1 General requirement of return, statement, or list.

156.6061-1 Signing of returns and other documents.

156.6065-1 Verification of returns.

156.6071-1 Time for filing returns relating to greenmail.

156.6081-1 Extension of time for filing the return.

156.6091-1 Place for filing chapter 54 (Greenmail) tax returns.

156.6091 -- 2 Exceptional cases.

156.6151-1 Time and place for paying of tax shown on returns.

156.6161-1 Extension of time for paying tax or deficiency.

156.6165-1 Bonds where time to pay tax or deficiency has been extended.

Authority: Sections 6001, 6011, 6061, 6071, 6091, 6161, and 7805 of the Internal Revenue Code of 1986 (26 U.S.C. 6001, 6011, 6061, 6071, 6091, 6161, and 7805), unless otherwise noted.

Source: T.D. 8379, 56 FR 65685, Dec. 18, 1991, unless otherwise noted.

26 CFR 150.6402-1 Subpart A -- Tax on Greenmail

26 CFR 156.5881-1 Imposition of excise tax on greenmail.

(a) In general. Section 5881 of the Code imposes a tax equal to 50 percent of the gain or other income realized by any person on the receipt of greenmail, whether or not the gain or other income is recognized.

(b) Transactions occurring on or after March 31, 1988. For transactions occurring on or after March 31, 1988, greenmail is defined as any consideration transferred by a corporation (or any person acting in concert with the corporation) to directly or indirectly acquire stock of the corporation from any shareholder if:

(1) The transferring shareholder has held the stock (as determined under section 1223) for less than two years before entering into the agreement to transfer the stock,

(2) The shareholder, any person acting in concert with the shareholder, or any person related to the shareholder or to a person acting in concert with the shareholder made or threatened to make a public tender offer for stock of the corporation at some time during the two-year period ending on the date of the acquisition of the stock by the corporation, and

(3) The acquisition is pursuant to an offer that was not made on the same terms to all shareholders.

(c) Transactions occurring before March 31, 1988. For transactions occurring before March 31, 1988, greenmail has the same meaning as in paragraph (b) of this section, except that it does not include any consideration transferred by any person acting in concert with the corporation described in that paragraph.

(d) Effective date. Generally, section 5881 of the Code applies to consideration received after December 22, 1987, in taxable years ending after that date. However, section 5881 does not apply to any acquisition of stock pursuant to a written binding contract in effect on December 15, 1987, and at all times thereafter before the acquisition.

26 CFR 156.5881-1 Subpart B -- Procedure and Administration

26 CFR 156.6001-1 Notice or regulations requiring records, statements, and special returns.

(a) In general. Any person subject to tax under chapter 54 (Greenmail) of the Code shall keep such complete and detailed records as are sufficient to enable the district director to determine accurately the amount of liability under chapter 54.

(b) Notice by district director requiring returns, statements, or the keeping of records. The district director may require any person, by notice served upon him, to make such returns, render such statements, or keep such specific records as will enable the district director to determine whether or not the person is liable for tax under chapter 54 of the Code.

(c) Retention of records. The records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees, and shall be retained so long as the contents thereof may become material in the administration of any internal revenue law.

(T.D. 8379, 56 FR 65685, Dec. 18, 1991; 57 FR 5931, Feb. 18, 1992)

26 CFR 156.6011-1 General requirement of return, statement, or list.

Every person liable for tax under section 5881 of the Code shall file a return with respect to the tax on the form prescribed by the Internal Revenue Service (Form 8725). Each such person shall include therein the information required by the form and the instructions issued with respect thereto.

26 CFR 156.6061-1 Signing of returns and other documents.

Any return, statement, or other document required to be made with respect to a tax imposed by chapter 54 (Greenmail) of the Code or the regulations thereunder shall be signed by the person required to file the return, statement, or other document, or by the persons required or duly authorized to sign in accordance with the regulations, forms, or instructions prescribed with respect to such return, statement, or document. An individual's signature on such a return, statement, or other document shall be prima facie evidence that the individual is authorized to sign the return, statement, or other document.

26 CFR 156.6065-1 Verification of returns.

If a return, statement, or other document made under the provisions of chapter 54 (Greenmail) or of subtitle F of the Code, or the regulations thereunder with respect to any tax imposed by chapter 54, or the form and instructions issued with respect to such return, statement, or other document, requires that it shall contain or be verified by a written declaration that it is made under the penalties of perjury, it must be so verified by the person or persons required to sign such return, statement, or other document. In addition, any other statement or document submitted under any provision of chapter 54 or of subtitle F of the Code, or the regulations thereunder with respect to any tax imposed by chapter 54 may be required to contain or be verified by written declaration that is made under the penalties of perjury.

26 CFR 156.6071-1 Time for filing returns relating to greenmail.

(a) In general. Returns required by 156.6011-1 (relating to liability for tax on greenmail under section 5881) shall be filed on or before the ninetieth day following receipt of any portion of the greenmail. Greenmail is considered to be received when gain or other income is realized, as determined according to the taxpayer's method of accounting, without regard to any provision of the Code providing for deferral of recognition.

(b) Returns relating to greenmail received before the date these regulations become final. Returns required by 156.6011-1 that relate to greenmail received on or before December 18, 1991, shall be filed on or before March 18, 1992.

26 CFR 156.6081-1 Extension of time for filing the return.

(a) Authority to grant extension. District directors and directors of service centers are authorized to grant a reasonable extension of time for filing any return, statement, or other document that relates to any tax imposed by chapter 54 (Greenmail) of the Code and that is required under the provisions of chapter 54 or the regulations thereunder. However, except in the case of taxpayers who are abroad, such an extension of time shall not be granted for more than 6 months. An extension of time for filing a return shall not extend the time for the payment of the tax or any part thereof unless specified to the contrary in the grant of extension.

(b) Application for extension. The application for an extension of time for filing the return shall be addressed to the district director or the director of the service center with whom the return is to be filed and must contain a full recital of the causes for the delay. It should be made before the expiration of the time within which the return otherwise must be filed, and failure to do so may indicate negligence and constitute sufficient cause for denial. It should, where possible, be made sufficiently early to permit consideration of the matter and reply before what otherwise would be the due date of the return.

(c) Filing of return. If an extension of time for filing the return is granted, a return shall be filed before the expiration of the period of extension.

26 CFR 156.6091-1 Place for filing chapter 54 (Greenmail) tax returns.

Except as provided in 156.6091-2 (relating to exceptional cases):

(a) Individuals, estates, and trusts. In general, tax returns under chapter 54 of the Code of individuals, estates, and trusts shall be filed with the district director for the internal revenue district in which is located the legal residence or the principal place of business of the person required to make the return.

(b) Corporations. In general, tax returns under chapter 54 of the Code of corporations shall be filed with the district director for the internal revenue district in which is located the principal place of business or the principal office or agency of the corporation.

(c) Partnerships. In general, tax returns under chapter 54 of the Code of partnerships shall be filed with the district director for the internal revenue district in which is located the principal place of business or the principal office or agency of the partnership.

(d) Returns of taxpayers outside the United States. The return of a person (other than a partnership or a corporation) outside the United States having no legal residence or principal place of business or agency in any internal revenue district, or the return of a partnership or a corporation having no principal place of business or principal office or agency in any internal revenue district, shall be filed with the Assistant Commissioner (International), Internal Revenue Service, 950 L'Enfant Plaza South, SW., Washington, DC 20224, unless the principal place of business or the legal residence of such person, or the principal place of business or principal office or agency of the partnership or corporation, is located in the Virgin Islands or Puerto Rico, in which case the return shall be filed with the Assistant Commissioner (International), Internal Revenue Service, Hato Rey, Puerto Rico 00918.

(e) Returns filed with service centers or by hand carrying. Notwithstanding paragraph (a), (b), (c), or (d) of this section, unless a return is filed by hand carrying, whenever instructions applicable to tax returns under chapter 54 of the Code provide that the returns be filed with a service center, the returns must be so filed in accordance with the instructions. Returns that are filed by hand carrying shall be filed with the district director (or with any person assigned the administrative supervision of an area, zone, or local office constituting a permanent post of duty within an internal revenue district of such director) in accordance with paragraphs (a), (b), (c), or (d) of this section.

(T.D. 8379, 56 FR 65685, Dec. 18, 1991; 57 FR 5931, Feb. 18, 1992)

26 CFR 156.6091-2 Exceptional cases.

Notwithstanding the provisions of 156.6091-1, the Commissioner may permit the filing of any tax return under chapter 54 (Greenmail) of the Code with any internal revenue district.

26 CFR 156.6151-1 Time and place for paying of tax shown on returns.

The tax under chapter 54 (Greenmail) of the Code shown on any return shall, without notice of assessment and demand, be paid to the internal revenue officer with whom the return is filed at the time and place for filing such return (determined without regard to any extension of time for filing the return). For provisions relating to the time and place for filing such return, see 156.6071-1 and 156.6091-1. For provisions relating to the extension of time for paying the tax, see 156.6161-1.

26 CFR 156.6161-1 Extension of time for paying tax or deficiency.

(a) In general -- (1) Tax shown or required to be shown on return. A reasonable extension of the time for payment of the amount of any tax imposed by chapter 54 (Greenmail) of the Code and shown or required to be shown on any return may be granted by the appropriate district director at the request of the taxpayer. The period of such extension shall not exceed 6 months from the date for payment of such tax.

(2) Deficiency. The time for payment of any amount determined as a deficiency in respect of tax imposed by chapter 54 of the Code may, at the request of the taxpayer, be extended by the internal revenue officer to whom the tax is required to be paid. The extension may be for a period not to exceed 18 months from the date fixed for payment of the deficiency, as shown on the notice and demand. In exceptional cases, a further extension for a period not in excess of 12 months may be granted. No extension of time for payment of a deficiency shall be granted if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.

(3) Extension of time for filing distinguished. The granting of an extension of time for filing a return does not operate to extend the time for the payment of the tax or any part thereof unless so specified in the extension.

(b) Certain rules relating to extensions of time for paying income tax to apply. The provisions of 1.6161-1 (b), (c), and (d) of this chapter (relating to a requirement for undue hardship, to the application for extension, and to payment pursuant to an extension) shall apply to extensions of time for payment of the tax imposed by chapter 54 of the Code.

26 CFR 156.6165-1 Bonds where time to pay tax or deficiency has been extended.

If an extension of time for payment is granted under section 6161 of the Code, the district director or the director of the service center may, if he deems it necessary, require a bond for the payment of the amount in respect to which the extension is granted in accordance with the terms of the extension. However, the bond shall not exceed double the amount with respect to which the extension is granted. For provisions relating to form of bonds, see the regulations under section 7101 of the Code contained in part 301 of title 26 (Regulations on Procedure and Administration).

26 CFR 156.6165-1 PARTS 157-299(RESERVED)

26 CFR 156.6165-1 Subch. D, App.

26 CFR 156.6165-1 APPENDIX TO SUBCHAPTER D -- 1939 REGULATIONS NOT ENTIRELY SUPERSEDED

Editorial Note: The text of regulations issued pursuant to the Internal Revenue Code of 1939, and not entirely superseded as of April 1, 1976, is set forth below. *004

Part 316 -- Excise Taxes on Sales by the Manufacturer

Subpart A -- General Provisions

Sec.

316.1 Meaning of terms.

316.2 Effective period.

316.3 Liability for tax.

316.4 Who is a manufacturer.

316.5 When tax attaches.

316.6 Sales of taxable articles by a person other than the manufacturer thereof.

316.7 Tax on use by manufacturer, producer, or importer.

316.8 Basis of tax on sales, generally.

316.9 Basis of tax on leases, installment sales, conditional sales, and sales under chattel mortgage arrangements.

316.10 Charges for coverings, containers, etc., generally.

316.11 Exclusion of tax.

316.12 Exclusion of charges for transportation, delivery, etc., generally.

316.13 Discounts and adjustments, generally.

316.14 Exchanges, etc.

316.15 Fair market price in case of retail sales, consignments, etc., generally.

Subpart B -- General Exemptions

316.20 Tax-free sales and registration.

316.21 Articles sold to manufacturers.

316.22 Articles sold for resale to manufacturers.

316.23 Proof of right to exemption.

316.24 Sales to States or political subdivisions thereof and to the United States.

316.25 Sales for export.

316.26 Proof of exportation.

316.27 Shipments to possessions of the United States.

316.28 Exemption of certain supplies for certain vessels.

316.29 Exemption of certain supplies for aircraft.

Authority: Sections 316.1 to 316.29 issued under 53 Stat. 419, 467; 26 U.S.C. 3450, 3791.

Subpart A -- General Provisions

Source: Sections 316.1 to 316.15 contained in Regulation 46, 5 FR 142, Jan. 11, 1940, except as otherwise noted. Redesignated at 14 FR 5200, Aug. 19, 1949.

316.1 Meaning of Terms. As used in the regulations in this part:

(a) The terms defined in the applicable provisions of law shall have the meanings so assigned to them.

(b) The term ''manufacturer'' includes ''producer'' and ''importer.'' (See also 316.4.)

(c) The term ''exporter'' means the person named as shipper or consignor in the export bill of lading.

(d) The term ''exportation'' means the severance of an article from the mass of things belonging within the United States with the intention of uniting it with the mass of things belonging within some foreign country or within a possession of the United States.

(e) The term ''possession of the United States'' includes the Philippine Islands, the Panama Canal Zone, the Virgin Islands, Guam, Puerto Rico, American Samoa, Wake, Palmyra, and the Midway Islands.

(f) The term ''sale'' means an agreement whereby the seller transfers the property (that is, the title or the substantial incidents of ownership) in goods to the buyer for a consideration called the price, which may consist of money, services, or other things.

(g) The term ''taxable article'' means any article taxable under Chapter 29, Subchapter A, of the Internal Revenue Code.

(h) The term ''vendor'' includes a lessor.

(i) The term ''purchaser'' includes a lessee.

316.2 Effective Period. 1005 (a) Taxes on the manufacturer's sale of tires and inner tubes; automobile truck chassis and bodies, other automobile chassis and bodies and motorcycles, and parts and accessories therefor; radio components; household type mechanical refrigerators and components therefor; and firearms, shells, and cartridges became effective under Title IV of the Revenue Act of 1932, on June 21, 1932. The tax on the vendor's sale of electrical energy became effective under section 6 of the act of June 16, 1933, (Public No. 73-73d Congress), amending section 616 of the Revenue Act of 1932, on September 1, 1933. The tax on the manufacturer's sale of tractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer became effective under Title IV of the Revenue Act of 1938, on July 1, 1938. The applicable provisions of the Revenue Act of 1932, as amended, were supersedede as of March 1, 1939, by provisions of the Internal Revenue Code.

The Code provisions were amended by subsequent acts, including the Revenue Act of 1941.

(b) The change in the basis of the tax on automobile bus chassis, bus bodies, bus trailer and semitrailer chassis and bodies therefor; the tax on the manufacturer's sales of chassis and bodies for trailers and semitrailers suitable for use in connection with passenger automobiles and motorcycles; the taxes on the manufacturer's sale of complete radio receiving sets; phonographs, phonograph records; musical instruments; mechanical refrigerators (other than household type refrigerators, and components therefor) including commercial refrigerators, coolers, etc.; refrigerating apparatus; air-conditioners, and components therefor; and, the new manufacturers' excise taxes on sales of sporting goods; luggage; electric, gas, and oil appliances; photographic apparatus; electric signs; business and store machines; rubber articles; washing machines; optical equipment; and electric light bulbs and tubes, became effective under Title V of the Revenue Act of 1941, on October 1, 1941.

(c) Under the provisions of Title VI of the Revenue Act of 1942, effective November 1, 1942, the taxes with respect to sales of electric signs, rubber articles, washing machines and optical equipment are terminated, and certain changes are made in the taxes with respect to sales of refrigerators, etc., and photographic apparatus.

(d) The provision of section 302 of the Revenue Act of 1943, relating to the increase in the rate of tax on electric light bulbs and tubes; the provision of section 302 of the Revenue Act of 1943, affecting section 3441(c), I.R.C., which relates to leases, conditional