80 FR 11141 - Determination of Adjusted Applicable Federal Rates Under Section 1288 and the Adjusted Federal Long-Term Rate Under Section 382
DEPARTMENT OF THE TREASURY
Internal Revenue Service Federal Register Volume 80, Issue 40 (March 2, 2015)
Internal Revenue Service
Federal Register Volume 80, Issue 40 (March 2, 2015)
| Page Range | 11141-11145 | |
| FR Document | 2015-04213 |
[Federal Register Volume 80, Number 40 (Monday, March 2, 2015)] [Proposed Rules] [Pages 11141-11145] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-04213] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [REG-136018-13] RIN 1545-BM20 Determination of Adjusted Applicable Federal Rates Under Section 1288 and the Adjusted Federal Long-Term Rate Under Section 382 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking and notice of public hearing. ----------------------------------------------------------------------- SUMMARY: This document contains proposed regulations that provide the method to be used to adjust the applicable Federal rates (AFRs) under section 1288 of the Internal Revenue Code (Code) (adjusted AFRs) for tax-exempt obligations and the method to be used to determine the long- term tax-exempt rate and the adjusted Federal long-term rate under section 382. For tax-exempt obligations, the proposed regulations affect the determination of original issue discount under section 1273 and of total unstated interest under section 483. In addition, the proposed regulations affect the determination of the limitations under sections 382 and 383 on the use of certain operating loss carryforwards, tax credits, and other attributes of corporations following ownership changes. This document also contains a request for comments and provides notice of a public hearing on these proposed regulations. DATES: Written or electronic comments must be received by June 1, 2015. Outlines of topics to be discussed at the public hearing scheduled for June 24, 2015 must be received by June 1, 2015. ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-136018-13), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG- 136018-13), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, DC, or sent electronically, [[Page 11142]] via the Federal eRulemaking portal at www.regulations.gov (IRS REG- 136018-13). The public hearing will be held in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue NW., Washington, DC. FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations under section 1288, Jason G. Kurth at (202) 317-6842; concerning the proposed regulations under section 382, William W. Burhop at (202) 317- 6847; concerning submissions of comments, the hearing, and/or to be placed on the building access list to attend the hearing, Oluwafunmilayo (Funmi) Taylor at (202) 317-6901 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background This document contains proposed amendments to 26 CFR part 1 (Income Tax Regulations) under sections 382 and 1288 of the Code. The proposed regulations provide the new method by which the Treasury Department and the IRS propose to determine the adjusted AFRs under section 1288 to take into account the tax exemption for interest on tax-exempt obligations (as defined in section 1275(a)(3) and Sec. 1.1275-1(e)) and the long-term tax-exempt rate and the adjusted Federal long-term rate under section 382(f) to take into account differences between rates on long-term taxable and tax-exempt obligations. Section 1274(d) directs the Secretary to determine the AFRs that are used for determining the imputed principal amount of debt instruments to which section 1274 applies, computing total unstated interest on payments to which section 483 applies, and other purposes. Under section 1274(d)(1), the AFR is: (i) In the case of a debt instrument with a term not over three years, the Federal short-term rate; (ii) in the case of a debt instrument with a term over three years but not over nine years, the Federal mid-term rate; and (iii) in the case of a debt instrument with a term over nine years, the Federal long-term rate. Sections 1274(d)(2) and (3) provide special rules for selecting the appropriate AFR in specified circumstances. Section 1274(d)(2) provides that, in the case of a sale or exchange, the AFR shall be the lowest AFR in effect for any month in the 3-calendar-month period ending with the first calendar month in which there is a binding contract in writing for the sale or exchange. Section 1274(d)(3) requires that options to renew or extend be taken into account in determining the term of a debt instrument. During each month, the Treasury Department determines the AFRs that will apply during the following calendar month based on the average market yield of outstanding marketable obligations of the United States with appropriate maturities. See Sec. 1.1274-4(b). The IRS publishes the AFRs for each month in the Internal Revenue Bulletin (see Sec. 601.601(d)(2)(ii)). Section 1288(b)(1) provides that, in applying section 483 or section 1274 to a tax-exempt obligation, under regulations prescribed by the Secretary, appropriate adjustments shall be made to the AFR to take into account the tax exemption for interest on the obligation. The IRS publishes the adjusted AFRs for each month in the Internal Revenue Bulletin (see Sec. 601.601(d)(2)(ii)). In the case of a corporation that has undergone an ownership change described in section 382(g): (i) Section 382 places an annual limit (the section 382 limitation) on the amount of the corporation's taxable income that may be offset by certain net operating loss carryforwards and built-in losses; and (ii) section 383 places a limit, determined by reference to the section 382 limitation, on the amount of the corporation's income tax liability that may be offset by certain tax credits and other tax attributes. Under section 382(b)(1), the section 382 limitation generally equals the product of (A) the value of the stock of the corporation immediately prior to the ownership change and (B) the long-term tax-exempt rate. Section 382(f)(1) defines the long-term tax-exempt rate as the highest of the adjusted Federal long-term rates in effect for any month in the three-calendar-month period ending with the calendar month in which the ownership change occurs. Section 382(f)(2) provides that the term ``adjusted Federal long-term rate'' means the Federal long-term rate determined under section 1274(d), except that sections 1274(d)(2) and (3) shall not apply, and such rate shall be properly adjusted for differences between rates on long-term taxable and tax-exempt obligations. Section 382(f) was added to the Code by the Tax Reform Act of 1986, Public Law 99-514 (100 Stat. 2254). The Report of the Committee on Ways and Means on H.R. 3838, the Tax Reform Act of 1985 (the title of the Act as it passed the House), states that the long-term tax-exempt rate should be determined by adjusting the Federal long-term rate (determined under section 1274) pursuant to section 1288 to take into account tax exemption. H.R. Rep. No. 99-426, 99th Cong., 1st Sess. 268 (1985) (1986-3 CB (Vol. 2) 1, 268). The Conference Report for the Tax Reform Act of 1986 states that the adjusted Federal long-term rate is to be computed as the yield on a diversified pool of prime, general obligation tax-exempt bonds with remaining periods to maturity of more than nine years. The report also explains that it is necessary to the purposes of section 382 that the long-term tax-exempt rate be lower than the Federal long-term rate. Further, the Committee anticipated that the long-term tax-exempt rate would ordinarily fall in a range between (i) the Federal long-term rate multiplied by a percentage equal to the difference between 100 percent and the corporate tax rate, and (ii) 100 percent of the Federal long-term rate. 2 H.R. Rep. No. 99-841 (Conf. Rep.), 99th Cong., 2d Sess. II-188 (1986) (1986-3 CB (Vol. 4) 1, 188). Under current tax rates, that would be between 65 percent and 100 percent of the Federal long-term rate. Since November 1986, the adjusted Federal long-term rate published under section 382(f)(2) has been equal to the long-term adjusted AFR with annual compounding published under section 1288(b) in the same month. See Rev. Rul. 86-133 (1986-2 CB 59) (see Sec. 601.601(d)(2)(ii)). For calendar months from November 1986 to February 2013, the Treasury Department determined the adjusted Federal long-term rate and each adjusted AFR described in section 1288(b)(1) by multiplying the corresponding AFR by a fraction (the adjustment factor). The numerator of the adjustment factor was a composite yield of the highest-grade tax-exempt obligations available, which are prime, general obligation tax-exempt obligations. The denominator was a composite yield of U.S. Treasury obligations with maturities similar to those of the tax-exempt obligations. Each of the composite yields was measured over a one-month period. Since the beginning of 2008, market yields of prime, general obligation tax-exempt obligations have sometimes exceeded market yields of comparable U.S. Treasury obligations, causing the adjusted Federal long-term rate and each adjusted AFR to exceed the corresponding AFRs. This relationship between the adjusted rates and the corresponding AFRs showed that the adjustment factor no longer served the purposes of sections 1288(b)(1) and 382(f)(2), which require adjustments to reflect only tax exemption, not credit quality. These rates are also inconsistent with the express intention of Congress that the adjusted Federal long-term rate and the long-term tax-exempt rate be lower than the Federal long-term rate. [[Page 11143]] Request for Comments and Summary of Comments In response, the IRS published Notice 2013-4 (2013-9 IRB 527) on February 25, 2013, requesting comments on possible modifications to the method by which adjusted AFRs and the adjusted Federal long-term rate are determined. The notice solicited comments on several potential adjustment factors. One proposal was an adjustment factor based on tax rates, under which each adjusted AFR would be the product of (A) the appropriate AFR, and (B) the excess of (i) one hundred percent over (ii) a tax rate or a fixed percentage of a tax rate. Another proposal was an adjustment factor based on historical data, under which the adjustment factor would be fixed at an amount that would produce a spread between Federal long-term rates and adjusted Federal long-term rates equal to the average spread between those rates during the period from 1986 through 2007 (which is the period before changes in market conditions elevated the yields of many obligations in relation to U.S. Treasury obligations). The notice also requested comments on whether the adjusted Federal long-term rate described in section 382(f)(2) should continue to be determined in the same manner as the adjusted AFRs described in section 1288(b)(1). Notice 2013-4 provided that, until the Treasury Department and the IRS issue further guidance, the adjusted AFRs and the long-term tax- exempt rate would continue to be calculated using the adjustment factor, except that the adjustment factor would equal one for any month in which the adjustment factor would otherwise be greater than one or in which the denominator of the adjustment factor would otherwise be less than or equal to zero. The IRS received two comments in response to Notice 2013-4. One commenter recommended an adjustment factor based on tax rates for purposes of section 1288, and made no recommendation regarding section 382. That commenter suggested that the proper tax rate to use to calculate the adjusted AFRs is the highest individual tax rate set forth in section 1, increased by the tax rate under section 1411 applicable to the investment income of individuals. The other commenter recommended the use of historical data to determine the lowest individual marginal tax rate needed to attract sufficient investors to clear the market supply of tax-exempt obligations for purposes of section 1288. That commenter recommended that there be no change to the calculation of the long-term tax-exempt rate under section 382. In the alternative, the commenter recommended that the adjusted Federal long-term rate described in section 382(f) be subject to a floor because the commenter argued that section 382 is intended to defer rather than eliminate net operating losses, and the lower the long-term tax-exempt rate, the greater the likelihood that net operating losses subject to section 382 limitation will expire before they are used. Explanation of Provisions The language and purposes of sections 382 and 1288 suggest that AFRs are to be adjusted in the same manner for purposes of both provisions. Implementation of each provision requires an adjustment to take into account the effect of tax exemption on market yields. Therefore, under these proposed regulations, the adjusted Federal long- term rate under section 382(f) would continue to be determined in the same manner as the adjusted AFRs under section 1288. The Treasury Department and the IRS recognize that, to be entirely consistent with the language and legislative history of sections 382 and 1288, the adjusted Federal long-term rate and each adjusted AFR should be determined based on the current market yield on a pool of tax-exempt obligations that have terms, features, and credit quality matching those of U.S. Treasury obligations, which would result in an adjusted Federal long-term rate or adjusted AFR that is lower than the corresponding AFR. However, under recent market conditions tax-exempt obligations with perceived credit qualities approximating U.S. Treasury obligations arguably no longer exist. Because of the increasing spreads between the yields of U.S. Treasury obligations and other debt instruments, the yield of a pool of tax-exempt obligations will likely be higher than the yield of similar U.S. Treasury obligations and the AFR for the corresponding term. During the period from 1986 to 2007, certain tax-exempt obligations satisfied the criteria in the Code and the legislative history. As discussed in this preamble, the current adjustment factor is based on the ratio of yields on prime, general obligation tax-exempt obligations to yields of U.S. Treasury obligations with similar maturities. From 1986 to 2007, that ratio (and, as a result, the ratios of adjusted AFRs and adjusted Federal long-term rates to AFRs) was, on average, approximately equal to one minus 59 percent of the maximum individual tax rate under section 1. That relationship was relatively stable over the period; the ratio of the spread between the yields to the maximum individual tax rate under section 1 generally did not vary by more than a few percentage points. In the absence of current market data from tax-exempt obligations and U.S. Treasury obligations with similar maturities and similar credit quality, the Treasury Department and the IRS believe this historical market data provides the best indication of the effect of a tax exemption on market yields. The Treasury Department and the IRS therefore propose use of this historical market data to create an appropriate adjustment factor based on individual tax rates. Consistent with a proposal in Notice 2013-4 and one commenter's suggestion regarding section 1288, the proposed adjustment factor is one minus the product of a tax rate and a fixed percentage. The Treasury Department would therefore determine the adjusted AFRs and the adjusted Federal long-term rate for each month from the appropriate AFRs for that month using the proposed adjustment factor that results from the following calculation: 100 percent - [(a combined tax rate) x (a fixed percentage)]. Consistent with both commenters' suggestions regarding section 1288, the tax rate is the maximum individual tax rate. Specifically, the tax rate in the proposed adjustment factor is the sum of the maximum individual rate under section 1 and the maximum individual rate under section 1411 for the month to which the rate applies. Using current maximum individual tax rates under sections 1 and 1411, the combined tax rate in the calculation would be 43.4 percent, the sum of 39.6 percent and 3.8 percent. High-income individuals purchase a large percentage of municipal bonds because these purchasers benefit the most from the tax exemption. While individual and corporate tax rates were relatively stable from 1986 to 2007, data analyzed by the Treasury Department indicate that the differential between yields on tax-exempt municipal bonds and comparable U.S. Treasury obligations was significantly more correlated with the highest individual income tax rates than with corporate tax rates. Thus, an adjustment factor based on the maximum individual tax rate allows a better approximation of the market-based adjustment that Congress intended than would one based on a corporate tax rate. The tax on net investment income under section 1411 is included in the proposed adjustment factor to account for the entire rate of [[Page 11144]] federal tax imposed on high-income individuals who hold taxable obligations. The fixed percentage is the amount by which that combined tax rate must be multiplied to reflect the historical relationship between the maximum tax rate and the spread between yields of taxable and tax- exempt obligations. The spread is less than 100% of the maximum tax rate because, for example, issuers of tax-exempt bonds need to attract purchasers with effective tax rates lower than the maximum individual tax rate. The fixed percentage in the proposed adjustment factor is 59 percent, because the yield on tax-exempt obligations from February 1986 to July 2007 was lower than that of comparable taxable obligations by, on average, 59 percent of the maximum individual rate in effect under section 1. Therefore, the adjustment factor under current tax rates would be 74.39 percent, the result of subtracting 25.61 percent (the product of 43.4 percent and 59 percent) from 100 percent. If an AFR for a given month were 5 percent, under current tax rates, the corresponding adjusted AFR would be 3.72 percent: The product of 74.39 percent and 5 percent. If that 5 percent AFR were the Federal long-term rate for debt instruments with annual compounding, the adjusted Federal long-term rate under section 382 would likewise be 3.72 percent. The proposed regulations do not adopt the suggestion of one commenter that the adjusted Federal long-term rate described in section 382(f) be subject to a floor because that would be inconsistent with the primary purpose of section 382. The primary purpose of section 382 is to preserve the integrity of the carryover provisions by discouraging tax-motivated corporate acquisitions while allowing the carryover provisions to perform their intended averaging function. To accomplish this purpose, section 382 seeks to limit the use of pre- change losses by an acquiring corporation to no more than the loss corporation's ability to use such losses, with that limit being determined by multiplying the long-term tax-exempt rate--a rate below the Federal long-term rate--by the value of the loss corporation. The Conference Report for the Tax Reform Act of 1986 explains: The use of a rate lower than the long-term Federal rate is necessary to ensure that the value of NOL carryforwards to the buying corporation is not more than their value to the loss corporation. Otherwise there would be a tax incentive for acquiring loss corporations. If the loss corporation were to sell its assets and invest in long-term Treasury obligations, it could absorb its NOL carryforwards at a rate equal to the yield on long-term government obligations. Since the price paid by the buyer is larger than the value of the loss company's assets (because of the value of NOL carryforwards are taken into account), applying the long-term Treasury rate to the purchase price would result in faster utilization of NOL carryforwards by the buying corporation. 2 H.R. Rep. No. 99-841 (Conf. Rep.), 99th Cong., 2d Sess. II-188 (1986) (1986-3 CB (Vol. 4) 1, 188). Imposing a floor on the adjusted Federal long-term rate, and thereby on the long-term tax-exempt rate, would reduce the effect of the mechanism Congress established to ensure that the value of net operating loss carryforwards to the acquiring corporation is not more than the value of those carryforwards to the loss corporation. Moreover, as a matter of statutory interpretation, an upward adjustment of the adjusted Federal long-term rate to comply with a fixed minimum level would disregard the express direction of Congress to determine the adjusted Federal long-term rate based on the Federal long-term rate determined under section 1274(d), which is not subject to a floor, with adjustments to take into account the differences between rates on taxable and tax-exempt obligations. Further, the legislative history of section 382(f) suggests that Congress intended that the adjusted Federal long-term rate be determined in a manner similar to the adjusted AFR under section 1288. The tax rate used to determine adjusted AFRs under these proposed regulations differs from the tax rate used to determine the interest rate on demand deposit securities under the State and Local Government Series (SLGS). Demand deposit SLGS securities are one-day certificates of indebtedness that are automatically rolled over each day until the holder requests redemption. See 31 CFR 344.7. The interest rate on the securities is based on yields of 13-week Treasury bills, with a number of adjustments. Among the adjustments is multiplying the annualized Treasury bill yield by the excess of one over the estimated marginal tax rate of purchasers of tax-exempt bonds. That estimated marginal tax rate is published from time to time in the Federal Register and is currently 39.6 percent. The Treasury Department and the IRS request comments on whether the interest rate on SLGS should reflect the same correction for tax exemption as the adjusted AFRs (the product of the fixed percentage and the combined tax rate). Proposed Effective/Applicability Date These regulations are proposed to apply to calendar months beginning after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comments on its impact on small business. Comments and Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS as prescribed in this preamble under the ADDRESSES heading. The Treasury Department and the IRS request comments on all aspects of the proposed rules. All comments will be available for public inspection and copying at www.regulations.gov or upon request. A public hearing has been scheduled for June 24, 2015, at 10:00 a.m., in the IRS Auditorium, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, DC. Due to building security procedures, visitors must enter through the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section of this preamble. The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit written (signed original and eight (8) copies) or electronic [[Page 11145]] comments and an outline of the topics to be discussed and the time to be devoted to each topic by June 1, 2015. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing. Drafting Information The principal authors of the proposed regulations are Jason G. Kurth, IRS Office of the Associate Chief Counsel (Financial Institutions and Products) and William W. Burhop, IRS Office of the Associate Chief Counsel (Corporate). However, other personnel from the Treasury Department and the IRS participated in their development. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Proposed Amendments to the Regulations Accordingly, 26 CFR part 1 is proposed to be amended as follows: PART 1--INCOME TAXES 0 Paragraph 1. The authority citation for part 1 is amended by adding entries in numerical order to read in part as follows: Authority: 26 U.S.C. 7805 * * * Section 1.382-12 also issued under 26 U.S.C. 382(f) and 26 U.S.C. 382(m). * * * Section 1.1288-1 also issued under 26 U.S.C. 1288(b). * * * 0 Par. 2. Section 1.382-1 is amended by revising the introductory text and adding an entry for Sec. 1.382-12 to read as follows: Sec. 1.382-1 Table of contents. This section lists the captions that appear in the regulations for Sec. Sec. 1.382-2 through 1.382-12. * * * * * Sec. 1.382-12 Determination of adjusted Federal long-term rate. (a) In general. (b) Adjusted Federal long-term rate. (c) Adjustment factor. (d) Effective/applicability date. 0 Par. 3. Section 1.382-12 is added to read as follows: Sec. 1.382-12 Determination of adjusted Federal long-term rate. (a) In general. The long-term tax-exempt rate for an ownership change is the highest of the adjusted Federal long-term rates in effect for any month in the 3-calendar-month period ending with the calendar month in which the change date occurs. For purposes of the previous sentence, the adjusted Federal long-term rate is the Federal long-term rate determined under section 1274(d) (without regard to paragraphs (2) and (3) thereof), adjusted for differences between rates on long-term taxable and tax-exempt obligations. The Secretary calculates the adjusted Federal long-term rate as provided in paragraph (b) of this section. The Internal Revenue Service publishes the long-term tax- exempt rate and the adjusted Federal long-term rate for each month in the Internal Revenue Bulletin (see Sec. 601.601(d)(2)(ii) of this chapter). (b) Adjusted Federal long-term rate. The adjusted Federal long-term rate for a calendar month is the product of the Federal long-term rate determined under section 1274(d) for that month, based on annual compounding, multiplied by the adjustment factor described in paragraph (c) of this section. (c) Adjustment factor. The adjustment factor is a percentage equal to-- (1) The excess of 100 percent, over (2) The product of-- (i) 59 percent, and (ii) The sum of the maximum rate in effect under section 1 applicable to individuals and the maximum rate in effect under section 1411 applicable to individuals for the month to which the adjusted applicable Federal rate applies. (d) Effective/applicability date. The rules of this section apply to the determination of the long-term tax-exempt rate and the adjusted Federal long-term rate during calendar months beginning after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register. 0 Par. 4. Section 1.1288-1 is added to read as follows: Sec. 1.1288-1 Adjustment of applicable Federal rate for tax-exempt obligations. (a) In general. In applying section 483 or section 1274 to a tax- exempt obligation, the applicable Federal rate is adjusted to take into account the tax exemption for interest on the obligation. For each applicable Federal rate determined under section 1274(d), the Secretary computes a corresponding adjusted applicable Federal rate by multiplying the applicable Federal rate by the adjustment factor described in paragraph (b) of this section. The Internal Revenue Service publishes the applicable Federal rates and the adjusted applicable Federal rates for each month in the Internal Revenue Bulletin (see Sec. 601.601(d)(2)(ii) of this chapter). (b) Adjustment factor. The adjustment factor is a percentage equal to-- (1) The excess of 100 percent, over (2) The product of-- (i) 59 percent, and (ii) The sum of the maximum rate in effect under section 1 applicable to individuals and the maximum rate in effect under section 1411 applicable to individuals for the month to which the adjusted applicable Federal rate applies. (c) Effective/applicability date. The rules of this section apply to the determination of adjusted applicable Federal rates during calendar months beginning after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register. John M. Dalrymple, Deputy Commissioner for Services and Enforcement. [FR Doc. 2015-04213 Filed 2-27-15; 8:45 am] BILLING CODE 4830-01-P
![Federal Register / Vol. 80, No. 40 / Monday, March 2, 2015 / Proposed Rules 11141
promoting safe flight of civil aircraft in (c) Applicability Issued in Burlington, Massachusetts, on
air commerce by prescribing regulations This AD applies to all Pratt & Whitney February 20, 2015.
for practices, methods, and procedures (PW) JT8D–217C and JT8D–219 turbofan Colleen M. D’Alessandro,
the Administrator finds necessary for engines with low-pressure turbine (LPT) Assistant Directorate Manager, Engine &
safety in air commerce. This regulation shaft part numbers 783319, 783319–001, Propeller Directorate, Aircraft Certification
is within the scope of that authority 783319–003, 783319–004, 783320, 783320– Service.
because it addresses an unsafe condition 001, 783320–003, 783320–004, 820514–001, [FR Doc. 2015–04059 Filed 2–27–15; 8:45 am]
that is likely to exist or develop on 820514–003, 820514–004, or 820514–005, BILLING CODE 4910–13–P
products identified in this rulemaking installed.
action. (d) Unsafe Condition
Regulatory Findings This AD was prompted by reports of DEPARTMENT OF THE TREASURY
cracking in the LPT shaft. We are issuing this
We determined that this proposed AD AD to prevent failure of the LPT shaft, which Internal Revenue Service
would not have federalism implications could lead to an uncontained engine failure
under Executive Order 13132. This and damage to the airplane. 26 CFR Part 1
proposed AD would not have a
substantial direct effect on the States, on (e) Compliance [REG–136018–13]
the relationship between the national Comply with this AD within the RIN 1545–BM20
Government and the States, or on the compliance times specified, unless already
distribution of power and done. Determination of Adjusted Applicable
responsibilities among the various For engines with an LPT shaft part number Federal Rates Under Section 1288 and
listed in paragraph (c) of this AD: the Adjusted Federal Long-Term Rate
levels of government.
(1) If the LPT shaft has 15,000 or fewer
For the reasons discussed above, I Under Section 382
cycles since new (CSN) on the effective date
certify this proposed regulation: of this AD, remove it from service before it
(1) Is not a ‘‘significant regulatory AGENCY: Internal Revenue Service (IRS),
accumulates 20,000 CSN. Treasury.
action’’ under Executive Order 12866, (2) If the LPT shaft has more than 15,000
(2) Is not a ‘‘significant rule’’ under ACTION: Notice of proposed rulemaking
CSN on the effective date of this AD, remove
the DOT Regulatory Policies and it from service before it accumulates 5,000 and notice of public hearing.
Procedures (44 FR 11034, February 26, additional cycles in service, or at the next
1979), SUMMARY: This document contains
piece-part exposure after accumulating
(3) Will not affect intrastate aviation 20,000 CSN, whichever occurs first. proposed regulations that provide the
in Alaska to the extent that it justifies (3) After the effective date of this AD, do method to be used to adjust the
making a regulatory distinction, and not install any LPT shaft listed in paragraph applicable Federal rates (AFRs) under
(4) Will not have a significant (c) of this AD that is at piece-part exposure section 1288 of the Internal Revenue
economic impact, positive or negative, and exceeds the new life limit of 20,000 CSN, Code (Code) (adjusted AFRs) for tax-
on a substantial number of small entities into any engine. exempt obligations and the method to
under the criteria of the Regulatory (f) Definitions be used to determine the long-term tax-
Flexibility Act. exempt rate and the adjusted Federal
For the purpose of this AD, piece-part
long-term rate under section 382. For
List of Subjects in 14 CFR Part 39 exposure is when the LPT shaft is completely
disassembled from the engine. tax-exempt obligations, the proposed
Air transportation, Aircraft, Aviation regulations affect the determination of
safety, Incorporation by reference, (g) Alternative Methods of Compliance original issue discount under section
Safety. (AMOCs) 1273 and of total unstated interest under
The Manager, Engine Certification Office, section 483. In addition, the proposed
The Proposed Amendment FAA, may approve AMOCs for this AD. Use regulations affect the determination of
Accordingly, under the authority the procedures found in 14 CFR 39.19 to the limitations under sections 382 and
delegated to me by the Administrator, make your request. You may email your 383 on the use of certain operating loss
the FAA proposes to amend 14 CFR part request to: ANE-AD-AMOC@faa.gov.
carryforwards, tax credits, and other
39 as follows: (h) Related Information attributes of corporations following
(1) For more information about this AD, ownership changes. This document also
PART 39—AIRWORTHINESS
contact Jo-Ann Theriault, Aerospace contains a request for comments and
DIRECTIVES Engineer, Engine Certification Office, FAA, provides notice of a public hearing on
■ 1. The authority citation for part 39 Engine & Propeller Directorate, 12 New these proposed regulations.
England Executive Park, Burlington, MA DATES: Written or electronic comments
continues to read as follows: 01803; phone: 781–238–7105; fax: 781–238–
Authority: 49 U.S.C. 106(g), 40113, 44701.
must be received by June 1, 2015.
7199; email: jo-ann.theriault@faa.gov.
(2) PW Service Bulletin No. JT8D 6504, Outlines of topics to be discussed at the
§ 39.13 [Amended] dated November 5, 2014, which is not public hearing scheduled for June 24,
■ 2. The FAA amends § 39.13 by adding incorporated by reference in this proposed 2015 must be received by June 1, 2015.
the following new airworthiness AD, can be obtained from PW using the ADDRESSES: Send submissions to:
directive (AD): contact information in paragraph (h)(3) of CC:PA:LPD:PR (REG–136018–13), Room
wreier-aviles on DSK5TPTVN1PROD with PROPOSALS
this proposed AD. 5203, Internal Revenue Service, P.O.
Pratt & Whitney: Docket No. FAA–2014–
(3) For service information identified in Box 7604, Ben Franklin Station,
1127; Directorate Identifier 2014–NE–
16–AD. this proposed AD, contact Pratt & Whitney, Washington, DC 20044. Submissions
400 Main St., East Hartford, CT 06108;
(a) Comments Due Date phone: 860–565–8770; fax: 860–565–4503.
may be hand-delivered Monday through
(4) You may view this service information Friday between the hours of 8 a.m. and
We must receive comments by May 1,
2015. at the FAA, Engine & Propeller Directorate, 4 p.m. to CC:PA:LPD:PR (REG–136018–
12 New England Executive Park, Burlington, 13), Courier’s Desk, Internal Revenue
(b) Affected ADs MA. For information on the availability of Service, 1111 Constitution Avenue NW.,
None. this material at the FAA, call 781–238–7125. Washington, DC, or sent electronically,
VerDate Sep<11>2014 15:09 Feb 27, 2015 Jkt 235001 PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 E:\FR\FM\02MRP1.SGM 02MRP1](https://thefederalregister.org/doc/80_FR_11181/page/1.svg)
![Federal Register / Vol. 80, No. 40 / Monday, March 2, 2015 / Proposed Rules 11143
Request for Comments and Summary of the long-term tax-exempt rate under section 1. That relationship was
Comments section 382. In the alternative, the relatively stable over the period; the
In response, the IRS published Notice commenter recommended that the ratio of the spread between the yields to
2013–4 (2013–9 IRB 527) on February adjusted Federal long-term rate the maximum individual tax rate under
25, 2013, requesting comments on described in section 382(f) be subject to section 1 generally did not vary by more
possible modifications to the method by a floor because the commenter argued than a few percentage points. In the
which adjusted AFRs and the adjusted that section 382 is intended to defer absence of current market data from tax-
Federal long-term rate are determined. rather than eliminate net operating exempt obligations and U.S. Treasury
The notice solicited comments on losses, and the lower the long-term tax- obligations with similar maturities and
several potential adjustment factors. exempt rate, the greater the likelihood similar credit quality, the Treasury
that net operating losses subject to Department and the IRS believe this
One proposal was an adjustment factor
section 382 limitation will expire before historical market data provides the best
based on tax rates, under which each
they are used. indication of the effect of a tax
adjusted AFR would be the product of
exemption on market yields.
(A) the appropriate AFR, and (B) the Explanation of Provisions The Treasury Department and the IRS
excess of (i) one hundred percent over The language and purposes of therefore propose use of this historical
(ii) a tax rate or a fixed percentage of a sections 382 and 1288 suggest that AFRs market data to create an appropriate
tax rate. Another proposal was an are to be adjusted in the same manner adjustment factor based on individual
adjustment factor based on historical for purposes of both provisions. tax rates. Consistent with a proposal in
data, under which the adjustment factor Implementation of each provision Notice 2013–4 and one commenter’s
would be fixed at an amount that would requires an adjustment to take into suggestion regarding section 1288, the
produce a spread between Federal long- account the effect of tax exemption on proposed adjustment factor is one
term rates and adjusted Federal long- market yields. Therefore, under these minus the product of a tax rate and a
term rates equal to the average spread proposed regulations, the adjusted fixed percentage. The Treasury
between those rates during the period Federal long-term rate under section Department would therefore determine
from 1986 through 2007 (which is the 382(f) would continue to be determined the adjusted AFRs and the adjusted
period before changes in market in the same manner as the adjusted Federal long-term rate for each month
conditions elevated the yields of many AFRs under section 1288. from the appropriate AFRs for that
obligations in relation to U.S. Treasury The Treasury Department and the IRS month using the proposed adjustment
obligations). The notice also requested recognize that, to be entirely consistent factor that results from the following
comments on whether the adjusted with the language and legislative history calculation: 100 percent ¥ [(a combined
Federal long-term rate described in of sections 382 and 1288, the adjusted tax rate) × (a fixed percentage)].
section 382(f)(2) should continue to be Federal long-term rate and each Consistent with both commenters’
determined in the same manner as the adjusted AFR should be determined suggestions regarding section 1288, the
adjusted AFRs described in section based on the current market yield on a tax rate is the maximum individual tax
1288(b)(1). pool of tax-exempt obligations that have rate.
Notice 2013–4 provided that, until the terms, features, and credit quality Specifically, the tax rate in the
Treasury Department and the IRS issue matching those of U.S. Treasury proposed adjustment factor is the sum
further guidance, the adjusted AFRs and obligations, which would result in an of the maximum individual rate under
the long-term tax-exempt rate would adjusted Federal long-term rate or section 1 and the maximum individual
continue to be calculated using the adjusted AFR that is lower than the rate under section 1411 for the month to
adjustment factor, except that the corresponding AFR. However, under which the rate applies. Using current
adjustment factor would equal one for recent market conditions tax-exempt maximum individual tax rates under
any month in which the adjustment obligations with perceived credit sections 1 and 1411, the combined tax
factor would otherwise be greater than qualities approximating U.S. Treasury rate in the calculation would be 43.4
one or in which the denominator of the obligations arguably no longer exist. percent, the sum of 39.6 percent and 3.8
adjustment factor would otherwise be Because of the increasing spreads percent. High-income individuals
less than or equal to zero. between the yields of U.S. Treasury purchase a large percentage of
The IRS received two comments in obligations and other debt instruments, municipal bonds because these
response to Notice 2013–4. One the yield of a pool of tax-exempt purchasers benefit the most from the tax
commenter recommended an obligations will likely be higher than the exemption. While individual and
adjustment factor based on tax rates for yield of similar U.S. Treasury corporate tax rates were relatively stable
purposes of section 1288, and made no obligations and the AFR for the from 1986 to 2007, data analyzed by the
recommendation regarding section 382. corresponding term. Treasury Department indicate that the
That commenter suggested that the During the period from 1986 to 2007, differential between yields on tax-
proper tax rate to use to calculate the certain tax-exempt obligations satisfied exempt municipal bonds and
adjusted AFRs is the highest individual the criteria in the Code and the comparable U.S. Treasury obligations
tax rate set forth in section 1, increased legislative history. As discussed in this was significantly more correlated with
by the tax rate under section 1411 preamble, the current adjustment factor the highest individual income tax rates
applicable to the investment income of is based on the ratio of yields on prime, than with corporate tax rates. Thus, an
wreier-aviles on DSK5TPTVN1PROD with PROPOSALS
individuals. general obligation tax-exempt adjustment factor based on the
The other commenter recommended obligations to yields of U.S. Treasury maximum individual tax rate allows a
the use of historical data to determine obligations with similar maturities. better approximation of the market-
the lowest individual marginal tax rate From 1986 to 2007, that ratio (and, as based adjustment that Congress
needed to attract sufficient investors to a result, the ratios of adjusted AFRs and intended than would one based on a
clear the market supply of tax-exempt adjusted Federal long-term rates to corporate tax rate. The tax on net
obligations for purposes of section 1288. AFRs) was, on average, approximately investment income under section 1411
That commenter recommended that equal to one minus 59 percent of the is included in the proposed adjustment
there be no change to the calculation of maximum individual tax rate under factor to account for the entire rate of
VerDate Sep<11>2014 15:09 Feb 27, 2015 Jkt 235001 PO 00000 Frm 00004 Fmt 4702 Sfmt 4702 E:\FR\FM\02MRP1.SGM 02MRP1](https://thefederalregister.org/doc/80_FR_11181/page/3.svg)
![Federal Register / Vol. 80, No. 40 / Monday, March 2, 2015 / Proposed Rules 11145
comments and an outline of the topics 3-calendar-month period ending with Bulletin (see § 601.601(d)(2)(ii) of this
to be discussed and the time to be the calendar month in which the change chapter).
devoted to each topic by June 1, 2015. date occurs. For purposes of the (b) Adjustment factor. The adjustment
A period of 10 minutes will be allotted previous sentence, the adjusted Federal factor is a percentage equal to—
to each person for making comments. long-term rate is the Federal long-term (1) The excess of 100 percent, over
An agenda showing the scheduling of rate determined under section 1274(d) (2) The product of—
the speakers will be prepared after the (without regard to paragraphs (2) and (3) (i) 59 percent, and
deadline for receiving outlines has thereof), adjusted for differences (ii) The sum of the maximum rate in
passed. Copies of the agenda will be between rates on long-term taxable and effect under section 1 applicable to
available free of charge at the hearing. tax-exempt obligations. The Secretary individuals and the maximum rate in
calculates the adjusted Federal long- effect under section 1411 applicable to
Drafting Information individuals for the month to which the
term rate as provided in paragraph (b)
The principal authors of the proposed of this section. The Internal Revenue adjusted applicable Federal rate applies.
regulations are Jason G. Kurth, IRS Service publishes the long-term tax- (c) Effective/applicability date. The
Office of the Associate Chief Counsel exempt rate and the adjusted Federal rules of this section apply to the
(Financial Institutions and Products) long-term rate for each month in the determination of adjusted applicable
and William W. Burhop, IRS Office of Internal Revenue Bulletin (see Federal rates during calendar months
the Associate Chief Counsel (Corporate). § 601.601(d)(2)(ii) of this chapter). beginning after the date of publication
However, other personnel from the (b) Adjusted Federal long-term rate. of the Treasury decision adopting these
Treasury Department and the IRS The adjusted Federal long-term rate for rules as final regulations in the Federal
participated in their development. a calendar month is the product of the Register.
List of Subjects in 26 CFR Part 1 Federal long-term rate determined John M. Dalrymple,
under section 1274(d) for that month, Deputy Commissioner for Services and
Income taxes, Reporting and based on annual compounding,
recordkeeping requirements. Enforcement.
multiplied by the adjustment factor [FR Doc. 2015–04213 Filed 2–27–15; 8:45 am]
Proposed Amendments to the described in paragraph (c) of this
BILLING CODE 4830–01–P
Regulations section.
(c) Adjustment factor. The adjustment
Accordingly, 26 CFR part 1 is
factor is a percentage equal to—
proposed to be amended as follows: DEPARTMENT OF HOMELAND
(1) The excess of 100 percent, over
SECURITY
PART 1—INCOME TAXES (2) The product of—
(i) 59 percent, and Coast Guard
■ Paragraph 1. The authority citation (ii) The sum of the maximum rate in
for part 1 is amended by adding entries effect under section 1 applicable to 33 CFR Part 165
in numerical order to read in part as individuals and the maximum rate in
follows: [Docket Number USCG–2015–0019]
effect under section 1411 applicable to
Authority: 26 U.S.C. 7805 * * * individuals for the month to which the RIN 1625–AA00
adjusted applicable Federal rate applies.
Section 1.382–12 also issued under 26 Safety Zone; Xterra Swim, Myrtle
(d) Effective/applicability date. The
U.S.C. 382(f) and 26 U.S.C. 382(m). Beach, SC
rules of this section apply to the
* * *
determination of the long-term tax- AGENCY: Coast Guard, DHS.
Section 1.1288–1 also issued under 26
exempt rate and the adjusted Federal
U.S.C. 1288(b). * * * ACTION: Notice of proposed rulemaking.
long-term rate during calendar months
■ Par. 2. Section 1.382–1 is amended by
beginning after the date of publication SUMMARY: The Coast Guard proposes to
revising the introductory text and
of the Treasury decision adopting these issue a temporary safety zone on the
adding an entry for § 1.382–12 to read
rules as final regulations in the Federal waters of the Intracoastal Waterway in
as follows:
Register. Myrtle Beach, South Carolina. The
§ 1.382–1 Table of contents. ■ Par. 4. Section 1.1288–1 is added to Xterra Swim is scheduled to take place
This section lists the captions that read as follows: on Sunday, May 3, 2015. The temporary
appear in the regulations for §§ 1.382– § 1.1288–1 Adjustment of applicable
safety zone is necessary for the safety of
2 through 1.382–12. Federal rate for tax-exempt obligations. the swimmers, participant vessels,
* * * * * spectators, and the general public
(a) In general. In applying section 483 during the event. The temporary safety
§ 1.382–12 Determination of adjusted or section 1274 to a tax-exempt zone will restrict vessel traffic in a
Federal long-term rate. obligation, the applicable Federal rate is portion of the Intracoastal Waterway,
(a) In general. adjusted to take into account the tax preventing non-participant vessels from
(b) Adjusted Federal long-term rate. exemption for interest on the obligation. entering, transiting through, anchoring
(c) Adjustment factor. For each applicable Federal rate in, or remaining within the regulated
(d) Effective/applicability date. determined under section 1274(d), the area unless authorized by the Captain of
wreier-aviles on DSK5TPTVN1PROD with PROPOSALS
■ Par. 3. Section 1.382–12 is added to Secretary computes a corresponding the Port Charleston or a designated
read as follows: adjusted applicable Federal rate by representative.
multiplying the applicable Federal rate
§ 1.382–12 Determination of adjusted by the adjustment factor described in DATES: Comments and related material
Federal long-term rate. paragraph (b) of this section. The must be received by the Coast Guard on
(a) In general. The long-term tax- Internal Revenue Service publishes the or before April 1, 2015.
exempt rate for an ownership change is applicable Federal rates and the ADDRESSES: You may submit comments
the highest of the adjusted Federal long- adjusted applicable Federal rates for identified by docket number using any
term rates in effect for any month in the each month in the Internal Revenue one of the following methods:
VerDate Sep<11>2014 15:09 Feb 27, 2015 Jkt 235001 PO 00000 Frm 00006 Fmt 4702 Sfmt 4702 E:\FR\FM\02MRP1.SGM 02MRP1](https://thefederalregister.org/doc/80_FR_11181/page/5.svg)
Document Created: 2015-12-18 12:07:57
Document Modified: 2015-12-18 12:07:57
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Proposed Rules | |
| Action | Notice of proposed rulemaking and notice of public hearing. | |
| Dates | Written or electronic comments must be received by June 1, 2015. Outlines of topics to be discussed at the public hearing scheduled for June 24, 2015 must be received by June 1, 2015. | |
| Contact | Concerning the proposed regulations under section 1288, Jason G. Kurth at (202) 317-6842; concerning the proposed regulations under section 382, William W. Burhop at (202) 317- 6847; concerning submissions of comments, the hearing, and/or to be placed on the building access list to attend the hearing, Oluwafunmilayo (Funmi) Taylor at (202) 317-6901 (not toll-free numbers). | |
| FR Citation | 80 FR 11141 | |
| RIN Number | 1545-BM20 | |
| CFR Associated | Income Taxes and Reporting and Recordkeeping Requirements |
2025 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR